Series: Working Papers. 1906.
Author: Corinna Ghirelli, Javier J. Pérez and Alberto Urtasun.
Topics: Uncertainty | Economic policies | Quantitative methods | Business investment | International Economy.
Published in: Economics Letters Volume 182, September 2019, Pages 64-67
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Abstract
We construct a new Economic Policy Uncertainty (EPU) index for Spain, building on the
influential methodology of Baker, Bloom and Davis (2016), and compare it with the EPU for
Spain that these authors provide. We refine the index in several dimensions: we expand
the headline newspaper coverage from 2 to 7, including economic-financial ones, use a
much richer set of keywords to form the search expressions, and cover a longer sample
period. Two results stand out: (i) the new index presents a more consistent chronology
of economic policy events; (ii) the macroeconomic effects of uncertainty shocks identified
from the new index yield significant negative responses of GDP, private consumption and
private investment, compared to mute responses obtained using the original one. Beyond
the results for the Spanish case, our results suggest that, in addition to the richness of the
keywords in the search expressions, widening the press and time coverage is key to improve
the quality of the aggregate EPU index.