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Global economic uncertainty climbing sharply, IMF economists' new index finds

Economic uncertainty is on the rise globally, especially in the highest- and lowest-income countries, according to a new index developed by economists who aim to standardize the measurement of trepidation about economic policy.

The project, called the World Uncertainty Index, analyzes Economist Intelligence Unit, or EIU, country reports quarterly for the frequency of words such as "uncertainty."

"Uncertainty matters," IMF economist Hites Ahir, one of the developers of the index, said April 9 at the IMF's spring meeting in Washington, D.C. "It matters because it can really put a country's economy in big trouble."

The most recent data showed a sharp climb in global uncertainty in the first quarter, rising from an index reading of 161 in the fourth quarter of 2018 to 220. Higher numbers mean higher levels of uncertainty, with a value of 100 corresponding to the average in 1996-2010.

Among advanced economies, the index jumped from 147 to 224, while low-income countries' uncertainty index skyrocketed from 94 to 224.

The project provides more standardized metrics than the existing Economic Policy Uncertainty platform, the researchers said, because of the reliance on a single stream of data from the Economist Intelligence Unit reports. The Economic Policy Uncertainty platform measures the frequency of words like "uncertain" in a variety of major media outlets. "[T]he process through which EIU country reports are produced helps to mitigate concerns about ... accuracy, ideological bias and consistency," the index developers — Ahir, IMF economist Davide Furceri and Nicholas Bloom of Stanford University and the National Bureau of Economic Research — wrote in a paper in late 2018.

The Global Economic Policy Uncertainty measure, released monthly, showed a sharp rise in March, though it was below the December 2018 level.

When asked whether the index could help countries and governments select appropriate policy options to deal with specific increases and decreases in uncertainty, Furceri said the index is neutral on policy. "If you want to ... sustain demand in a period of very high uncertainty, it's better, perhaps, to postpone these measures when uncertainty goes down," he said. "You cannot say that, based on a given level of uncertainty, you should do this or you should not do this."