Recently, I participated in a panel of economists discussing “The Economic Consequences of President Trump.” My goal was to bring a fresh perspective by highlighting economic policy uncertainty (EPU) and its impact on asset volatility, contrasting Trump’s presidency with those of Obama and Biden. I emphasized that heightened EPU generally leads to caution among businesses and individuals regarding investments and hiring, reflecting in increased asset price volatility.
To analyse this, we measure EPU through the frequency of related terms in news articles. Interestingly, while media coverage of Trump often suggested heightened uncertainty, the EPU index showed relatively low levels during much of his presidency, spiking only after his 2024 election victory. In contrast, Biden’s administration exhibited higher levels, even discounting Covid impacts, particularly following Trump’s tenure during which media narratives deemed uncertainty prevalent.
Focusing on policy specifics, Trump’s trade and immigration policies contributed to a noticeable rise in EPU. Under Biden, trade policy became more straightforward while immigration processes were expedited. This shift in policy strategies correlates with lower uncertainty in the economic forecast, despite significant media dialogue surrounding Trump’s more volatile approach.
In assessing asset volatility, using a GARCH model, I observed that the conditional returns of the SCHG ETF were indeed more volatile under Biden’s era than during Trump’s. This finding highlights the influence monetary policy has on market performance, further complicating the narrative around asset volatility and economic uncertainty.
To understand these dynamics better, I analysed EPU’s contribution to volatility, adjusting for election cycles. Trump’s EPU added roughly 50% of the volatility compared to Obama, while Biden’s policies resulted in nearly 2.5 times more. This disparity prompts a reconsideration of the media’s frenzy over Trump and its relevance to actual asset pricing, suggesting that investors possess a keen ability to discern relevant information amidst the sensationalism.
Preparing for this panel proved enlightening; the data revealed unexpected insights. It became evident that Trump, despite generating substantial media attention, contributed less impactful EPU compared to Biden, aligning with the idea that much of the coverage may not directly translate to economic implications. Ultimately, this exploration does not predict future outcomes; instead, it serves to frame the varying degrees of uncertainty under these administrations as we approach a new chapter of governance.
This article discusses the economic policy uncertainty (EPU) stemming from Trump’s presidency compared to Obama and Biden. It explores how EPU impacts investment and asset volatility using a GARCH model. While Trump was perceived as a source of uncertainty, data indicates lower EPU under his administration compared to Biden’s. The analysis concludes that media coverage does not always reflect economic realities, revealing a complex relationship between policy, uncertainty, and market performance.
In conclusion, the analysis demonstrates a nuanced understanding of economic policy uncertainty across Trump and Biden’s administrations. Despite Trump’s considerable media spotlight, the actual EPU during his tenure was comparatively low, while Biden’s significantly impacted asset volatility. This exploration of EPU’s influence encourages a deeper examination of how media narratives shape public perceptions versus economic realities. As the political landscape evolves, it will be important to continue monitoring these trends for their economic implications.
Original Source: economistwritingeveryday.com
