Abstract
The purpose of this study is to investigate the effects of the COVID-19 pandemic on economic policy uncertainty in the US and the UK. The impact of the increase in COVID-19 cases and deaths in the country, and the increase in the number of cases and deaths outside the country may vary. To examine this, the study employs bootstrap ARDL cointegration approach from March 8, 2020 to May 24, 2020. According to the bootstrap ARDL results, a long-run equilibrium relationship is confirmed for five out of the 10 models. The long-term coefficients obtained from the ARDL models suggest that an increase in COVID-19 cases and deaths outside of the UK and the US has a significant effect on economic policy uncertainty. The US is more affected by the increase in the number of COVID-19 cases. The UK, on the other hand, is more negatively affected by the increase in the number of COVID-19 deaths outside the country than the increase in the number of cases. Moreover, another important finding from the study demonstrates that COVID-19 is a factor of great uncertainty for both countries in the short-term.
Highlights
The outbreak of the coronavirus (COVID-19) pandemic has become the focal point of the world
The COVID-19 started in China, as of May 2020, the US became the epicenter of the virus
We investigated the effect of COVID-19 on EPU in the US and the UK covering the period of March 7, 2020 to May 24, 2020
Summary
The outbreak of the coronavirus (COVID-19) pandemic has become the focal point of the world. While some countries can effectively treat reported cases, it is uncertain where, when and how new cases will occur (Mckibbin and Fernando, 2020), how long COVID19 will last, whether there will be vaccine against the pandemic, how long will governments maintain current incentives to address COVID-19 induced economic problems, and what the social, economic and political implications of this virus will be in the future. The continuity of production and consumption activities in these sectors has been deteriorated due to the virus Investors stop their investments and withdraw new investment decisions in countries where the virus creates economic uncertainty. This study attempts to quantify the impact of COVID-19 on economic policy uncertainty (EPU) in the UK and the US These two countries are selected due to the availability of daily EPU data.
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