Economic policy uncertainty around world

The economic policy uncertainty index began as a research project by some research professors but has grown into something much more than a historical analysis. The index is based on three part: news on policy uncertainty from leading newspapers, temporary changes in the tax code, and dispersion of economic forecasts. It provides a good approximation of economic uncertainty or ambiguity that can be measured systematically through time. The index has been expanded across regions, so, for example we can look at the US, Europe and China to measure relative uncertainty. 

The top graph shows the level of uncertainty over the last year. Europe has been higher than the US, but there has been increasing policy uncertainty in China. Both Europe and China are measured on a monthly basis while the US is measured daily. We kept the US data daily to provide an idea of how rough the data can be on any day. Clearly, the US has shown less uncertainty over the last year, but that has not been the case over longer periods.

Over the last five years, we have seen the relative uncertainty switch between regions. The US has spiked during budget crises while China has been the least uncertain for the last five year period. We can say that the relatively low level of policy uncertainty currently may have made the US a safer haven for investing.