Click here to close now.




















Welcome!

News Feed Item

New study: Indecisive economic policy takes a lasting toll on financial markets

SEATTLE, Dec. 26, 2012 /PRNewswire-USNewswire/ -- According to a new study from the University of Washington Foster School of Business, excessive debate and/or ambiguity on national tax, spending, regulation and debt decisions creates an environment of uncertainty that has an ill effect on financial markets. And this malaise can outlast the uncertainty itself.

The study by Jonathan Brogaard, assistant professor of finance, and Andrew Detzel, a doctoral student at the Foster School, demonstrates that when economic policy uncertainty increases, asset prices fall concurrently, and market volatility jumps significantly. What's more, the negative effect of government-induced uncertainty persists.

"We're finding," says Brogaard, "that the lack of a decision can be just as bad as a bad decision."

Many academic studies have sought to pinpoint the economic toll of policy uncertainty. Brogaard and Detzel are the first to connect a high-frequency measure with its effect on that most telling gauge of the economy, the financial markets.

They might have zeroed in on particularly contentious moments in recent policy history: Iraq war funding, Sarbanes-Oxley and Dodd-Frank reforms, the Affordable Care Act, the debt ceiling crisis, the sunsetting of Bush-era tax credits.

Instead, they measured uncertainty itself. Brogaard and Detzel built a web crawler that captures media mentions of terms commonly associated with economic policy uncertainty. The crawler scanned millions of articles in prominent magazines and newspapers over a 20-year period, monitoring the frequency of policy uncertainty reported in 21 geographically dispersed nations, among them the United States.

Separating policy uncertainty from trigger events affords a clearer picture of the life cycle of economic policy uncertainty. It allows for continuous tracking that takes into account periods of policy debate, inaction, inclusive action, ineffectual action, and anxiety over the need for future action.

"The passing of a bill does not necessarily indicate the resolution of all uncertainty," Brogaard says.

Once they identified periods of heightened uncertainty about economic policy, Brogaard and Detzel analyzed the corresponding stock market returns representing each nation in the study. An uptick in uncertainty sinks asset prices across the economy.

The reason, Brogaard explains, is that nationwide uncertainty signals a decrease in future cash flows and an increase in the risk premium—the amount an investor demands to hold an asset. On average, the cash flow impact lasts six months and the risk premium is heightened for over a year. The overall negative effect can last long beyond the period of uncertainty caused by any specific policy event.

The study's message to policy makers is clear: be more decisive.

This is certainly a tall order in a democracy, especially a democracy as starkly polarized as the American variety. Brogaard says that the United States is about average in its amount of government indecision among the 21 nations in the study. But with federal, state and local government expenditures comprising more than 42 percent of the nation's GDP in 2009, "the ubiquity of US government policy makes it very hard to diversify against uncertainty," Brogaard adds.

And uncertainty is growing. While marking its frequency across 20 years of media reports, Brogaard and Detzel charted a recent rise in American economic policy uncertainty over the past five years, and a spike since 2008.

Something to consider as the nation hurtles toward a "fiscal cliff" of automatic tax hikes and spending cuts set to begin in 2013 unless Congress takes action. Decisive action would be best.

The full study is available for download at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2075375

SOURCE The University of Washington's Michael G. Foster School of Business

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Cloud and datacenter migration innovator AppZero has joined the Microsoft Enterprise Cloud Alliance Program. AppZero is a fast, flexible way to move Windows Server applications from any source machine – physical or virtual – to any destination server, in any cloud or datacenter, using its patented container technology. AppZero’s container is also called a Virtual Application Appliance (VAA). To facilitate Microsoft Azure onboarding, AppZero has two purpose-built offerings: AppZero SP for Azure,...
WSM International, the pioneer and leader in server migration services, has announced an agreement with WHOA.com, a leader in providing secure public, private and hybrid cloud computing services. Under terms of the agreement, WSM will provide migration services to WHOA.com customers to relocate some or all of their applications, digital assets, and other computing workloads to WHOA.com enterprise-class, secure cloud infrastructure. The migration services include detailed evaluation and planning...
This Enterprise Strategy Group lab validation report of the NEC Express5800/R320 server with Intel® Xeon® processor presents the benefits of 99.999% uptime NEC fault-tolerant servers that lower overall virtualized server total cost of ownership. This report also includes survey data on the significant costs associated with system outages impacting enterprise and web applications. Click Here to Download Report Now!
IBM’s Blue Box Cloud, powered by OpenStack, is now available in any of IBM’s globally integrated cloud data centers running SoftLayer infrastructure. Less than 90 days after its acquisition of Blue Box, IBM has integrated its Blue Box Cloud Dedicated private-cloud-as-a-service into its broader portfolio of OpenStack® based solutions. The announcement, made today at the OpenStack Silicon Valley event, further highlights IBM’s continued support to deliver OpenStack solutions across all cloud depl...
SYS-CON Events announced today that Pythian, a global IT services company specializing in helping companies leverage disruptive technologies to optimize revenue-generating systems, has been named “Bronze Sponsor” of SYS-CON's 17th Cloud Expo, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Founded in 1997, Pythian is a global IT services company that helps companies compete by adopting disruptive technologies such as cloud, Big Data, advance...
Consumer IoT applications provide data about the user that just doesn’t exist in traditional PC or mobile web applications. This rich data, or “context,” enables the highly personalized consumer experiences that characterize many consumer IoT apps. This same data is also providing brands with unprecedented insight into how their connected products are being used, while, at the same time, powering highly targeted engagement and marketing opportunities. In his session at @ThingsExpo, Nathan Trel...
While many app developers are comfortable building apps for the smartphone, there is a whole new world out there. In his session at @ThingsExpo, Narayan Sainaney, Co-founder and CTO of Mojio, will discuss how the business case for connected car apps is growing and, with open platform companies having already done the heavy lifting, there really is no barrier to entry.
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
SYS-CON Events announced today that HPM Networks will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. For 20 years, HPM Networks has been integrating technology solutions that solve complex business challenges. HPM Networks has designed solutions for both SMB and enterprise customers throughout the San Francisco Bay Area.
SYS-CON Events announced today that G2G3 will exhibit at SYS-CON's @DevOpsSummit Silicon Valley, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Based on a collective appreciation for user experience, design, and technology, G2G3 is uniquely qualified and motivated to redefine how organizations and people engage in an increasingly digital world.
SYS-CON Events announced today the Containers & Microservices Bootcamp, being held November 3-4, 2015, in conjunction with 17th Cloud Expo, @ThingsExpo, and @DevOpsSummit at the Santa Clara Convention Center in Santa Clara, CA. This is your chance to get started with the latest technology in the industry. Combined with real-world scenarios and use cases, the Containers and Microservices Bootcamp, led by Janakiram MSV, a Microsoft Regional Director, will include presentations as well as hands-on...
Through WebRTC, audio and video communications are being embedded more easily than ever into applications, helping carriers, enterprises and independent software vendors deliver greater functionality to their end users. With today’s business world increasingly focused on outcomes, users’ growing calls for ease of use, and businesses craving smarter, tighter integration, what’s the next step in delivering a richer, more immersive experience? That richer, more fully integrated experience comes ab...
SYS-CON Events announced today that Micron Technology, Inc., a global leader in advanced semiconductor systems, will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Micron’s broad portfolio of high-performance memory technologies – including DRAM, NAND and NOR Flash – is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of tech...
Everyone talks about continuous integration and continuous delivery but those are just two ends of the pipeline. In the middle of DevOps is continuous testing (CT), and many organizations are struggling to implement continuous testing effectively. After all, without continuous testing there is no delivery. And Lab-As-A-Service (LaaS) enhances the CT with dynamic on-demand self-serve test topologies. CT together with LAAS make a powerful combination that perfectly serves complex software developm...
In today's digital world, change is the one constant. Disruptive innovations like cloud, mobility, social media, and the Internet of Things have reshaped the market and set new standards in customer expectations. To remain competitive, businesses must tap the potential of emerging technologies and markets through the rapid release of new products and services. However, the rigid and siloed structures of traditional IT platforms and processes are slowing them down – resulting in lengthy delivery ...