Policy uncertainty in Scandinavian countries

Abstract

We measure policy uncertainty for three small open economies and show how policy uncertainty indices can capture important historical events, both local events such as referendums and certain general elections, as well as global events such as financial crises. By employing the methodology of Baker et al. (2016), we construct indices for the three Scandinavian countries: Norway, Denmark and Sweden. We find that increased policy uncertainty both at home and in the world’s largest economy, the US, leads to economic contraction, including a significant decline in stock markets and GDP and a long-lasting reduction in the Scandinavian countries’ Purchasing Managers’ Index.