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Every day events around the world cause ripple effects that affect global, national, and local levels of economic and political uncertainty. Recent mainstream examples include US sanctions against Venezuela, Brexit, the partial US government shutdown, protests in France, and the US-China trade war. As uncertainty rises, we observe markets responding, whether you're tracking stock prices, commodity prices, or even interest rates. Today we have another more comprehensive measure available to use monitor these effects: the Economic Policy Uncertainty Index.

Developed by a group of American finance and business school professors, the Index estimates the level of uncertainty within an economy based on the volume of newspaper articles containing terms related to economic and policy uncertainty. This news-based index can also contribute to overall country risk estimations and market potential assessments.

Historical data from the Global Economic Policy Uncertainty Index* shows a significant relationship between index spikes and world events. For instance, the US index showed a high level of uncertainty after the failure of Lehman Brothers—a global financial services firm that filed for bankruptcy in 2008—and the 2016 US presidential elections, while the UK index spiked recently in the midst of Brexit.

 

*The Global Economic Policy Uncertainty Index value represents an index to a mean of 100 from 1997 to 2015 for an average of national indices for 20 countries, 16 of which rank among the top 20 countries globally by GDP.

 

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