NBER

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

Bibliographic Information

NBER Working Paper No. 26983
Issued in April 2020
NBER Program(s):EFG

Available Formats

Abstract

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.

National Bureau of Economic Research
1050 Massachusetts Ave.
Cambridge, MA 02138
617-868-3900
info@nber.org

Twitter RSS

View Full Site: One timeAlways