After the Great Depression of the late 2000s, the number of countries at the political level that became more pronounced at the political level increased. One of them is the United States. In the 2010 midterm elections, the Democrats barely held a majority in the Senate. However, in the lower house, the Republican Party gained significantly more seats than the Democratic Party.
Using Text to Quantify Policy Uncertainty
As a result, the parliament experienced a twisting phenomenon in which the Senate and the House had a different majority. The two parties were fiercely confronted in deliberations on budget and legislation, often resulting in stalemate and stalemate. When rating agency Standard & Poor’s downgraded U.S. Treasuries in 2011, one of the reasons for this was the instability in the decision-making process. The stagnation of policy decisions in Congress often referred to as decision politics, has greatly increased uncertainty about government policies.
Empirical studies have shown that increasing uncertainty has a significant negative impact on economic activity. The bill to issue deficit government bonds is one example. The budget was not marked with the prospect of the bill met even after the six months after you have established. National budget execution has been curtailed, and local governments have been forced to change spending plans.
In this way, the growing uncertainty of policy in Japan may have had a negative impact on economic activity. Answering these questions may provide some suggestions on what measures to take to reduce the impact on the real economy as much as policy uncertainty increases again. Needless to say, it is impossible to actually see the uncertainty of policy. Therefore, it is necessary to measure the degree of uncertainty through indicators that are thought to reflect that indirectly.
One of the most commonly used indicators in previous studies is the policy uncertainty index based on newspaper reports. The index was developed by research projects by Bloom of Stanford University and Davis of the University of Chicago. Specifically, we collect articles from several major US newspapers that contain words related to uncertainty, economy, and policy, and create an index based on the number of articles. Behind that approach is the belief that when articles about uncertainty are published frequently in newspapers, the uncertainty should be increasing in the world.
Not only in the United States but also in the EU, Russia, India, and China, a similar method has been used to generate a policy uncertainty index.