Sentiment and Uncertainty about Regulation
This GW Economics Seminar will feature Zhoudan Xie, and will be offered virtually. Please sign up for their Forecasting listserv to receive the link to the seminar.
Research Abstract: The U.S. government issues thousands of regulations a year. Regulations can create significant economic and social benefits, but poorly designed or excessive regulations may generate substantial adverse effects on the economy. In this study, we construct measures of sentiment and uncertainty about regulation in the U.S. over time and examine their relationships with macroeconomic performance. We construct the measures using lexicon-based sentiment analysis of an original news corpus, which covers 505,811 news articles related to regulation from seven leading U.S. newspapers. As a result, we build monthly indexes of sentiment and uncertainty about regulation from January 1985 to August 2020. To further explore what types of regulatory policy drive the connection between regulation and macroeconomic outcomes, we also construct categorical indexes for 15 regulatory policy areas. Our impulse response estimates indicate that a negative shock to sentiment about regulation is associated with large, persistent drops in future output and employment, while increased regulatory uncertainty reduces output and employment temporarily. Also, economic outcomes respond differently to sentiment and uncertainty shocks about different regulatory policy areas.