Bank of England staff working paper No 876 published in June 2020 onEconomic uncertainty before and during the Covid-19 pandemic’ has the preamble’ We consider several economic uncertainty indicators for the US and UK before and during the Covid-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future GDP growth”. Simply brilliant and a very good scholarly article. This scholarly study will spearhead us to understand the present economy during this Pandemic which has so far run an uninterrupted flow to wreck the whole world.

15 brilliant economic scholars contributed their brains to this impeccable study which has no parallel in the last 100 years since this Pandemic has made the world a standstill, closed all travels, kept the shops on unscheduled working and made both the parents and their kids confined to their sweet home, however boring it may be.

Now, the study.

Fed Chairman Jerome Powell aptly summarized the level of uncertainty in his May 21st speech noting “We are now experiencing a whole new level of uncertainty, as questions only the virus can answer complicate the outlook”.

Indeed, there is massive uncertainty about almost every aspect of the COVID-19 crisis, including

  • the infectiousness and lethality of the virus;
  • the time needed to develop and deploy vaccines;
  • whether a second wave of the pandemic will emerge;
  • the duration and effectiveness of social distancing;
  • the near-term economic impact of the pandemic and policy responses;
  • the speed of economic recovery as the pandemic recedes;
  • whether “temporary” government interventions will become permanent;
  • the extent to which pandemic induced shifts in consumer spending patterns,
  • business travel, and working from home will persist;
  • and the impact on business formation, and research and development.

I do not think we may add more uncertainties on account of Pandemic.

The scholars examined several measures of economic uncertainty, obviously, before and during the COVID-19, and adopted forward-looking uncertainties that were available in near real-time or with modest delays that could be measured in days or weeks.

Why did they assume this approach? Why not draw on past economic disasters which could actually give the then actual economic factors for comparison? Three simple reasons had been offered.

  • Measures drawn from statistical models were backward-looking. How could these compete with swift developments associated with the current pandemic?
  • Second, backward-looking approaches to quantifying uncertainty are problematic in the near-term wake of a huge shock that lacks close historic parallels.
  • Third, when an enormous and unusual shock hits with such suddenness, it is especially vital for real-time forecasting purposes and for policy formulation to work with measures that capture the uncertainties that economic agents actually perceive.

Or for a common man, let us not think about the dead snake in the past but start to worry about the current one kicking and alive.

During the study, the scholars narrated the mind-shattering disastrous economic indicators.(U.S.A.)

  • New claims for unemployment benefits in the early part of 2020 ranged from 201,000 to 282,000 per week through the week ending 14 March 2020.
  • Relative to covered employment, these figures correspond to the slowest pace of new claims in the history of the series back to 1971.
  • Over the ensuing twelve weeks, over 40 million Americans filed new claims, an astonishing surge without precedent in US history.
  • As measured in the Current Population Survey, the unemployment rate rose from 3.5 percent in February 2020 – its lowest rate in over 60 years – to 14.7 percent in April, the highest rate in 80 years.
  • The speed and scale of the COVID-19 employment shock dwarf any previous shock in the modern era.

How do these figures with encircling gloom, compare with the most dangerous earlier’ Spanish flu’ as it was Christened?

Spanish Flu killed about 40 million people worldwide or about 2.1 percent of the world’s population. Worldwide deaths attributed to COVID-19 as of 1 June 2020 are about 366,000 on a global population base of 7.7 billion, yielding a global mortality rate of less than 0.05 percent.

The Spanish Flu also unfolded in a very different social, political, and economic context than the current pandemic. Agriculture and Manufacturing accounted for 61 percent of employment then, as compared to 10 percent now. The first wave of the Spanish Flu in Spring 1918 occurred during the last stages of World War I, and the deadlier second wave from September 1918 to February 1919 overlapped with the end of the war and the demobilization of troops.

 These contemporaneous developments complicate efforts to assess the economic effects of the Spanish Flu. Virtually comparing events held nearly, a century years ago.

To summarize, the economic response to the COVID-19 pandemic is unprecedented in at least two respects:

 First, the suddenness and enormity of the economic shock, most visibly represented in the massive job losses and, second, the severity of the economic contraction relative to the size of the mortality shock.

Expectedly, the US stock market has also reacted with much greater force and volatility to COVID-19 than any other pandemic in the past 120 years.

 In all three of these respects, there is no close historic parallel to the COVID-19 contraction. But our scholars proceeded with forward-looking uncertainty measures like:

  • Exactly enumerating from the study “Stock Market Volatility: Examples include the 1-month and 24-month VIX, which quantify the option-implied volatility of returns on the S&P 500 index over their respective horizons. The 1-month VIX rose from about 15 in January 2020 to a peak daily value of 82.7 on 16 March before falling below 30 by early May. The second-highest daily value in the history of the 1- month VIX, which dates back to 1990, was 80.9 on 27 October 2008”.
  • Measures of Uncertainty for the United States for the COVID-19 Crisis which were considered for research purposes by the scholars are detailed below:

Table 1: Measures of Uncertainty for the United States for the COVID-19 Crisis

Measure Average Value in January  2020 Percentage Jump Jan 2020 to Peak Date of  Peak Value During  COVID
VIX 1-Month implied volatility, US 13.3 497 March 16  
VIX 24-Month implied volatility, US 16.2 108 March 18
Economic Policy Uncertainty, US 110.1 683 May 26  
Twitter Economic Uncertainty, US 139.8 594 April 22-28
Subjective Sales Growth Uncertainty, US 2.7 154 April 2020
Subjective Sales Growth Uncertainty, UK 4.3 91 April 2020
Forecaster disagreement, US 0.3 755 2020q2
Forecaster disagreement, UK 0.5 1960 2020q2

The study yielded the following tables or charts for comparison and study purposes:

  • Figure 1: VIX, Implied Stock Returns Volatility, Weekly Since 1990
  • Figure 2: U.S. Economic Policy Uncertainty Index and Twitter Economic Uncertainty Index, Weekly Since 1990
  • Figure 3: Firm-Level Subjective Sales Uncertainty, Monthly from 2017
  • Figure 4: COVID-Induced Uncertainty Rose Rapidly in March 2020
  • Figure 5: Cross-sectional dispersion of GDP growth forecasts
  • Figure 6: COVID uncertainty – high-frequency timing
  • Figure A1: COVID uncertainty by firm size
  • Figure A2: COVID uncertainty by industry
  • Anyone can easily read the detailed research paper for clarity.

Valuable results arrived at by the scholars are given below:

“We have examined a variety of forward-looking indicators of economic uncertainty,” said the scholars.

 Three results emerge.

 First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record.

 Second, peak amplitudes differ greatly – from a rise of around 100% (relative to January 2020) in two-year implied volatility on the S&P 500 and subjective uncertainty around year-ahead sales for UK firms to a 20-fold rise in forecaster disagreement about UK growth.

 Third, time paths also differ: Implied stock market volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices partly recovered.

 In contrast, broader measures peaked later, as job losses continued to mount, and they plateaued or continued rising after March.

Can we raise enough evidence to prove that the COVID-19 pandemic and its economic fallout lack close historic parallels in at least two respects?

The reply of the scholars is quite revealing. “First, the suddenness and enormity of the massive job losses and, second, the severity of the economic contraction relative to the size of the mortality shock. The unprecedented scale and nature of the COVID-19 crisis help explain why it has generated such an extraordinary surge in economic uncertainty.”


The report with its raised queries as well as projected answers explains the narration for a common man.

I shall give each one of them to raise our understanding the desired levels.

1. “For example, the subjective uncertainty measures are particularly apt for theories that stress the role of firm-level risks in economic fluctuations.

2. The VIX measures are obviously more apt for theories that link asset-pricing behavior to economic fluctuations.

3. The EPU measures are highly relevant for theories that link asset-pricing to political decision-making in reaction to macroeconomic developments (e.g., Pastor and Veronesi, 2012).

4. The newspaper-based and Twitter-based measures are perhaps more closely aligned with the perceptions of households.

5. All of the uncertainty measures we consider are potentially useful in testing and implementing theories about investment and consumption under uncertainty.

6. Indeed, many of them have been used to that end in previous studies.”

Let me agree with their actual feelings on the basis of their detailed research. “We should point out that these continuing high-levels of uncertainty do not bode well for a rapid economic recovery. Elevated uncertainty generally makes firms and consumers cautious, retarding investment, hiring and expenditures on consumer durables.

I do not visualize a gloomy picture for our future since India being a young country with the population mostly restless due to their high energy levels and also with the possibility of achieving higher economic growth. The recovery will be quicker and much faster than the projection of experts. Yes, comparable results with their absence also help us to recover faster results, more towards prosperity.



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