A Market-Based Measure of US Fiscal Policy Uncertainty
A new HAPRI study, co-authored by Tam Hoang Nhat Dang, Canh Phuc Nguyen (HAPRI Senior Research Associate) and David Gabauer, proposes a market-based measure of U.S. fiscal policy uncertainty at a daily frequency. The authors say the measure complements existing approaches and offers practical value for forecasting, planning, and fiscal policymaking.
Context
How uncertain is U.S. fiscal policy on a given day? This study answers with a market-based measure built on the COVOL framework of Engle and Campos-Martins (2023). It reads fiscal policy uncertainty (FPU) from the common volatility among fiscal-sensitive assets.
The authors report that the resulting indices show evidence of statistical validity and economic relevance. They then compare the indices with major fiscal and political episodes, the wider economy and individual market sectors.
Methods
The authors construct overall, short-term and long-term FPU indices for the US at a daily frequency. The indices are based on common volatility among fiscal-sensitive assets from 6 September 2013 to 25 April 2025. The authors then relate innovations in the indices to macroeconomic and financial series, and use sectoral regressions to examine volatility across market sectors.
Key findings
The indices are event-sensitive, with pronounced spikes around major fiscal and political episodes, notably US presidential elections and President Trump's tariff announcements.
Innovations in the FPU indices are associated with predominantly unidirectional macroeconomic and financial responses: industrial production, real GDP, private investment, tax revenue and some equity indices tend to decline, while unemployment and government debt tend to increase.
At the sectoral level, the regressions show that FPU amplifies volatility, especially in Real Estate and Financials.
The indices display weak but long memory, which suggests persistence yet mean reversion.
Keywords:
Fiscal Policy Uncertainty
COVOL
Common Volatility
Sectoral Volatility
Long Memory
United States
Link:
Citation:
Dang, T. H. N., Nguyen, C. P., & Gabauer, D. (2026). Measuring U.S. fiscal policy uncertainty: The COVOL approach. Quality & Quantity.
