RDP 2020-08: Start Spreading the News: News Sentiment and Economic Activity in Australia 4. News Sentiment versus Uncertainty

A measure of news uncertainty can also be constructed based on high-frequency information contained in news articles. The NUI is constructed in a slightly different fashion to the NSI. The NUI is estimated by calculating the share of articles that express uncertainty (through terms such as ‘risk’, ‘uncertainty’ and ‘volatility’), rather than the share of words that express uncertainty. This is due to the more limited number of times that words expressing uncertainty appear in news articles.

In March 2020, the NUI rose to a record high level indicating that the pandemic caused more economic uncertainty among Australian households and businesses than during the GFC (Figure 4). The NUI also strongly correlates with publicly available measures of economic uncertainty, such as the Economic Policy Uncertainty Index developed by Baker, Bloom and Davis (2016). Both uncertainty indicators have eased since April.