US Economic Policy Uncertainty is Presidential

• In Event: Political Economy of Policy Making in the United States

Abstract

We propose a direct measure of the public's uncertainty about government economic policy management: public approval of the the President's handling of the economy (PHE). We estimate the impact of PHE on U.S. consumer sentiment after controlling for several observable macroeconomic and political variables. We conclude that the direct measure of PHE is the single most important variable, explaining between 20\% and 30\% of the consumer sentiment variance at different horizons. The widely employed Economic Policy Uncertainty (EPU) measure is weakly correlated with PHE and explains at most 10\% of consumer sentiment variance. Economic policy uncertainty is decidedly politically, and, at least in the U.S., also Presidential.

Author

• Raymond Duch, CESS Nuffield