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Sentiment and uncertainty about regulation

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  • Tara M. Sinclair
  • Zhoudan Xie

Abstract

Regulatory policy can create economic and social benefits, but poorly designed or excessive regulation may generate substantial adverse effects on the economy. In this paper, we present measures of sentiment and uncertainty about regulation in the U.S. over time and examine their relationships with macroeconomic performance. We construct the measures using lexicon-based sentiment analysis of an original news corpus, which covers 493,418 news articles related to regulation from seven leading U.S. newspapers. As a result, we build monthly indexes of sentiment and uncertainty about regulation and categorical indexes for 14 regulatory policy areas from January 1985 to August 2020. Impulse response functions indicate that a negative shock to sentiment about regulation is associated with large, persistent drops in future output and employment, while increased regulatory uncertainty overall reduces output and employment temporarily. These results suggest that sentiment about regulation plays a more important economic role than uncertainty about regulation. Furthermore, economic outcomes are particularly sensitive to sentiment around transportation regulation and to uncertainty around labor regulation.

Suggested Citation

  • Tara M. Sinclair & Zhoudan Xie, 2021. "Sentiment and uncertainty about regulation," CAMA Working Papers 2021-54, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-54
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    More about this item

    Keywords

    Regulation; text analysis; NLP; sentiment analysis; uncertainty;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • K2 - Law and Economics - - Regulation and Business Law
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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