Policy Uncertainty and the Economy

Although much progress has been made in identifying important correlations between uncertainty and economic activity, concerns about causal identification remain. However, new empirical measures of uncertainty allow economists to ask questions with a precision likely to advance enduring debates on sources of uncertainty and their effects.

The implications of elevated political polarization offer the most parsimonious explanation of what are otherwise puzzling results on the economic effects of uncertainty. According to historical data, in the month of a United States presidential election, the odds of the US entering a recession within the next 12 months are roughly twice what they are in a typical month.

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