Economic Policy Uncertainty and the Credit Channel in the United States: Evidence over Several Decades

Recent literature emphasizes how uncertainty matters for economic decision-making. In recent models, for example, uncertainty results in a central region of inaction for hiring and investment, with this zone of inaction expanding when uncertainty is higher. New methodologies have also enabled researchers to better measure macroeconomic and economic policy uncertainty, and these measures appear to help predict recessions even after controlling for standard financial variables. Less well understood are the specific channels through which economic policy uncertainty may affect the macroeconomy. This applies particularly with respect to the recent weak recovery of U.S. bank lending.

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