Uncovering Economic Policy Uncertainty During Conflict
Year: 2025
Type: report
Abstract: The correct measurement of economic policy uncertainty (EPU) plays a critical role in many policy settings - in particular where economic policy decisions need to be taken in response to large shocks. One such large shock is armed conflict. But, counterintuitively, the standard text-based EPU index systematically declines during armed conflict periods. Using a global news corpus covering 192 countries and over 5 million articles, we show that this decline is driven not by reduced uncertainty, but by a crowding out of reporting on economics and policy. We show that a combination of topic modeling and two-way fixed effects can be used to adjust the measurement of EPU, providing a new view on political risk during armed conflict. After adjustment, the EPU aligns more closely with firm perceptions, political risk insurance and investment during armed conflict.
Source: Apollo (University of Cambridge)
DOI: 10.17863/cam.123172
Authors: Brochet, S., Mueller, H., Rauh, C.
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7105746776
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