Covid-Induced Economic Uncertainty

By Scott R. Baker, Nicholas Bloom, Steven J. Davis, Stephen J. Terry. 2020

1,175 citations recorded by the source corpus.

Assessing the economic impact of the COVID-19 pandemic is essential for policymakers, but challenging because the crisis has unfolded with extreme speed. We identify three indicators – stock market volatility, newspaper-based economic uncertainty, and subjective uncertainty in business expectation surveys – that provide real-time forward-looking uncertainty measures. We use these indicators to document and quantify the enormous increase in economic uncertainty in the past several weeks. We also illustrate how these forward-looking measures can be used to assess the macroeconomic impact of the COVID-19 crisis. Specifically, we feed COVID-induced first-moment and uncertainty shocks into an estimated model of disaster effects developed by Baker, Bloom and Terry (2020). Our illustrative exercise implies a year-on-year contraction in U.S. real GDP of nearly 11 percent as of 2020 Q4, with a 90 percent confidence interval extending to a nearly 20 percent contraction. The exercise says that about half of the forecasted output contraction reflects a negative effect of COVID-induced uncertainty.

Subfields: Economics and Econometrics, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/4c71803aeb55cb4bd25365cab630b3e9916f3140

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Citations in the corpus

Uncertainty Due to Infectious Diseases and Energy Market Volatility (2020, positive): “We utilize the new dataset by Baker et al. (2020) and employ a technique that accommodates the salient features of the relevant series.”
How COVID-19 drives connectedness among commodity and financial markets: Evidence from TVP-VAR and causality-in-quantiles techniques (2020, positive): “The pandemic has raised investors’ sentiments so high that it is regarded as the crisis with the greatest impact on stock markets (see Baker et al., 2020).”
A literature review of the economics of COVID‐19 (2020, neutral): “Consumption pattern responses and debt responses from pandemic shocks had not been analyzed prior to COVID-19 (Baker et al., 2020).”
Job search during the COVID-19 crisis (2020, positive): “11 Finally, overall increased uncertainty is expected to cause large output contraction (Baker et al., 2020)”
COVID-19 Is Also a Reallocation Shock (2020, neutral): “Barrero, Bloom and Wright (2017) and Bansal et al. (2019) provide evidence that R&D investments are highly sensitive to uncertainty, because they are irreversible and riskier than investments in physical capital.”
The pandemic and economic policy uncertainty (2020, positive): “Alternatively, Baker et al. (2020) reveal that no disease in history has had such forceful impacts on the stock market as COVID-19.”
COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach (2020, positive): “In a recent study, Baker et al. (2020), Baker, Bloom, Davis, and Terry (2020) unveil that during the last 22 trading days (24 February to 24 March), 18 stock market jumps were recorded and 16 to 18 of them are perceived as a response to “bad news” attributed to either the new infectious disease or…”
News and uncertainty about COVID-19: Survey evidence and short-run economic impact (2020, positive): “that expectations adjust more quickly in times of high uncertainty, in response to large shocks, and as media coverage intensifies ( Baker et al., 2020b; Coibion and Gorodnichenko, 2015; Larsen et al., 2021 ). All of these conditions are met in the context of the COVID-19 pandemic: it offers a natur”
The global effects of Covid-19-induced uncertainty (2020, positive): “As pointed out by Baker et al. (2020a), the peak value of inancial volatility recorded in March 2020 is the highest in reent history, Great Recession included.”
Unemployment Effects of Stay-at-Home Orders: Evidence from High-Frequency Claims Data (2020, positive): “Baker et al. (2020) show that economic uncertainty measured by stock market volatility, newspaper-based economic uncertainty, and subjective uncertainty in business expectation surveys rose sharply as the pandemic worsened.”