Economic Uncertainty before and during the COVID-19 Pandemic
Dave Altig, Scott Brent Baker, Jose Maria Barrero, Nick Bloom, Phil Bunn, Scarlet Chen, Steven J. Davis, Brent Meyer, Emil Mihaylov, Paul Mizen, Nick Parker, Thomas Renault, Pawel Smietanka, and Greg Thwaites
Working Paper 2020-9
Abstract: We consider several economic uncertainty indicators for the United States and the UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future gross domestic product growth. Three results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly—from an 80 percent rise (relative to January 2020) in two-year implied volatility on the S&P 500 to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: implied volatility rose rapidly from late February and peaked in mid-March, falling back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting the difference in uncertainty measures between Wall Street and Main Street.
JEL classification: D80, E22, E66, G18, L50
Key words: forward-looking uncertainty measures, volatility, COVID-19, coronavirus
The authors thank the U.S. National Science Foundation, the Sloan Foundation, the University of Chicago Booth School of Business, and the Economic and Social Research Council for financial support. They also thank Mike Clements and Martin Weale for comments on an earlier draft, Ian Dew-Becker for supplying data on the 24-month VIX, and Niall Ferguson for pointers to the literature on excess mortality in previous pandemics. This paper expands and extends parts of Baker, Bloom, Davis, and Terry (2020). The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Dave Altig, Scott Brent Baker, Jose Maria Barrero, Nick Bloom, Phil Bunn, Scarlet Chen, Steven J. Davis, Brent Meyer, Emil Mihaylov, Paul Mizen, Nick Parker, Pawel Smietanka, and Greg Thwaites.
Federal Reserve Bank of Atlanta working papers, including revised versions, are available on the Atlanta Fed's website at www.frbatlanta.org. Click "Publications" and then "Working Papers." To receive e-mail notifications about new papers, use frbatlanta.org/forms/subscribe.