Modeling the Determinants of Global Economic Uncertainty

Abstract

Economic uncertainty poses a significant challenge for decision-makers across the public and private sectors. While uncertainty is an inherently nebulous concept, developing consistent quantitative measures allows for rigorous analysis of its impacts. The World Uncertainty Index (WUI) provides a standardized quarterly index of uncertainty levels for 143 countries dating back to 1952 based on language in Economist Intelligence Unit reports. This study applies correspondence analysis to examine the relationship between countries' WUI values and their levels of economic development classified by the IMF's income groups. The results reveal distinct associations - advanced, high-income economies exhibit relatively low uncertainty while emerging markets and developing economies face higher uncertainty levels. Low-income countries experience moderate uncertainty. These findings underscore how economic instability can impede development progress. By quantifying uncertainty through empirical measures and analyzing its linkages with other economic factors, researchers can derive valuable insights for policymakers aiming to cultivate confidence and stability.