Higher policy uncertainty curbs business investment and employment growth

The years following the global economic crisis of 2008-2009 have been marked by policy uncertainty, both in the US and across the world. In new research, Scott R. Baker, Nicholas Bloom, and Steven Davis develop an index of economic policy uncertainty to examine how this uncertainty shapes economic outcomes. Using data going back to 1900 and extending coverage to 11 major economies, they find that heightened levels of policy uncertainty leads to firms reducing investment and employment, which in turn contributes to the sluggish growth which many economies have experienced in recent years.