Economic Uncertainty Before and During the Covid-19 Pandemic

26 Pages Posted: 22 Jun 2020 Last revised: 17 Jul 2020

See all articles by David Altig

David Altig

Federal Reserve Banks - Federal Reserve Bank of Atlanta; Federal Reserve Bank of Cleveland; University of Chicago - Booth School of Business

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Jose Barrero

Instituto Tecnológico Autónomo de México (ITAM)

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Philip Bunn

Bank of England

Scarlet Chen

Stanford University

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Julia Leather

University of Nottingham - School of Economics

Brent Meyer

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Emil Mihaylov

Federal Reserve Banks - Federal Reserve Bank of Dallas

Paul Mizen

University of Nottingham; Bank of England; Centre for Economic Policy Research (CEPR)

Nicholas Parker

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Thomas Renault

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Pawel Smietanka

Bank of England

Gregory Thwaites

London School of Economics & Political Science (LSE) - London School of Economics

Multiple version iconThere are 4 versions of this paper

Date Written: June 2020

Abstract

We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future GDP growth. Three results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly – from a rise of around 100% (relative to January 2020) in two-year implied volatility on the S&P 500 and subjective uncertainty around year-ahead sales for UK firms to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: Implied volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting the difference in uncertainty measures between Wall Street and Main Street.

Suggested Citation

Altig, David and Baker, Scott R. and Barrero, Jose and Bloom, Nicholas and Bunn, Philip and Chen, Scarlet and Davis, Steven J. and Leather, Julia and Meyer, Brent and Mihaylov, Emil and Mizen, Paul and Parker, Nicholas and Renault, Thomas and Smietanka, Pawel and Thwaites, Gregory, Economic Uncertainty Before and During the Covid-19 Pandemic (June 2020). NBER Working Paper No. w27418, Available at SSRN: https://ssrn.com/abstract=3632645

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Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance ( email )

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Jose Barrero

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Philip Bunn

Bank of England ( email )

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Scarlet Chen

Stanford University ( email )

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Steven J. Davis

University of Chicago ( email )

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Brent Meyer

Federal Reserve Banks - Federal Reserve Bank of Atlanta

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Emil Mihaylov

Federal Reserve Banks - Federal Reserve Bank of Dallas

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Paul Mizen

University of Nottingham ( email )

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Bank of England

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Nicholas Parker

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

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Thomas Renault

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

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Pawel Smietanka

Bank of England ( email )

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Gregory Thwaites

London School of Economics & Political Science (LSE) - London School of Economics ( email )

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