Canada Monthly Index
To measure Canadian policy-related economic uncertainty, we construct an index from two types of underlying components. One component quantifies newspaper coverage of policy-related economic uncertainty. A second component uses disagreement among economic forecasters as a proxy for uncertainty.
News coverage about policy-related economic uncertainty
We construct this index in a similar manner as our index based on American newspapers. Here we include 5 Canadian newspapers: The Gazette, The Vancouver Sun, The Toronto Star, The Ottawa Citizen, and The Globe and Mail. Additionally, we include articles from the Canadian Newswire.
As with our American newspaper index, we utilize the number of news articles containing the terms uncertain or uncertainty, economic or economy, as well as policy relevant terms (scaled by the smoothed number of articles containing 'today'). Policy relevant terms include: 'policy', 'tax', 'spending', 'regulation', 'central bank', 'budget', and 'deficit'.
Each paper-specific series is normalized to standard deviation 1 prior to 2011 and then summed. The series is normalized to mean 100 prior to 2011.
Canadian Forecast Data
The second component of our Canadian policy-related uncertainty index draws from forecast data from Consensus Economics. From Consensus Economics we obtain monthly data on individual forecasts regarding economic variables by professional forecasters. In particular, we utilize individual-level forecasts regarding consumer prices and the federal government budget balance.
We chose these variables because they are directly influenced by monetary policy and fiscal policy actions. For each series, we look at the monthly forecasts for the following year. We treat the dispersion in the forecasts of these variables as proxies for uncertainty about monetary policy and about federal government budget balance. This approach builds on a long literature using disagreement among forecasters as a proxy for economic uncertainty.
For inflation, we look at the individual forecasts for the monthly consumer price levels for the following year. To construct the dispersion component, we then take the interquartile range of each set of inflation rate forecasts in each month. For the budget balance component, we look at the raw interquartile range of forecasts for the following year's budget balance and then divide this range by Canada's current yearly GDP.
For both of these variables, due to the mechanically decreasing variance in forecasts as the next calendar year approaches, we remove monthly fixed effects from the data (post-removal components given in the downloadable data).
Constructing our overall policy-related economic uncertainty index
To construct our overall index of policy-related economy uncertainty, we first normalize each component by its own standard deviation prior to January 2011. We then compute the average value of the components using weights of 1/2 on our broad news-based policy uncertainty index and 1/4 on each forecast dispersion measure. For periods without budget balance forecasts, we use a weighting of 1/2 and 1/2. We then standardize the mean to equal 100 prior to 2011.