What the Continued Global Uncertainty Means for You
IMF Blog, January 19, 2021
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- Authors: Hites Ahir, Nicholas Bloom, Davide Furceri
- Published: January 19, 2021
Overview of global uncertainty
- The World Uncertainty Index—a quarterly measure of global economic and policy uncertainty covering 143 countries—shows that although uncertainty has come down by about 60 percent from the peak observed at the onset of the COVID-19 pandemic in the first quarter of 2020, it remains about 50 percent above its historical average during the 1996–2010 period.
- Global uncertainty reached unprecedented levels at the beginning of the COVID-19 outbreak and remains elevated.
Measurement and methodology
- Dataset coverage: country reports from the Economist Intelligence Unit, covering 143 countries from the first quarter of 1996 to the fourth quarter of 2020.
- Construction of the uncertainty-spillover index:
- Uncertainty spillovers from each systemic economy (the Group of 7 (G7) countries plus China) are measured by the frequency that the word “uncertainty” is mentioned in the reports in proximity to a word related to the respective systemic-economy country.
- For each country and quarter, reports are searched for the words “uncertain,” “uncertainty,” and “uncertainties” appearing near words related to each country.
- Country-specific words include the country’s name, name of presidents, name of the central bank, name of central bank governors, and selected country’s major events (such as Brexit).
- Raw counts are scaled by the total number of words in each report to make the measure comparable across countries.
- Interpretation rule: An increase in the index indicates that uncertainty is rising, and vice versa.
Key findings
- Two headline facts:
- Yes, uncertainty in systemic economies matters for uncertainty around the world.
- Only the United States and the United Kingdom have significant uncertainty spillover effects, while the other systemic economies play a little role, on average.
- United States spillovers:
- During the 2001–2003 period, U.S.-related uncertainty contributed to about 8 percent of the uncertainty in other countries—about 23 percent of the increase in global uncertainty from the historical mean.
- In the last 4 years, U.S.-related uncertainty has contributed to about 13 percent of uncertainty in other countries—with peaks of about 30 percent—and approximately 20 percent of the increase in global uncertainty from historical mean.
- United Kingdom spillovers:
- Uncertainty related to the U.K.-EU Brexit negotiations has had significant global spillovers in the last 4 years, with a peak of more than 30 percent and contributing to about 11 percent in the rise in global uncertainty during this period.
- Other systemic economies:
- The ratio of uncertainty related to Canada, China, France, Germany, Italy, and Japan combined to overall uncertainty shows little uncertainty spillover effects on the rest of the world.
- Exception: China in recent years shows notable spillovers, but most of the China-related uncertainty is due to trade tensions with the United States.
- While other systemic economies have limited global uncertainty spillovers, they have important regional uncertainty effects—such as Germany for the other European economies and China and Japan for several Asian economies.
Hites Ahir, Nicholas Bloom, Davide Furceri, “What the Continued Global Uncertainty Means for You”, January 19, 2021