Sentiment and uncertainty about regulation

Abstract

Businesses regularly cite the regulatory environment as an important consideration in production and hiring decisions, yet there is little research quantifying sentiment and uncertainty surrounding regulation. We present measures of sentiment and uncertainty about the U.S. regulatory environment using natural language processing applied to an original corpus of leading U.S. newspapers. We construct monthly indexes of regulatory sentiment and regulatory uncertainty, as well as categorical indexes for 14 regulatory policy areas, from 1985 through 2021. The estimated impulse responses suggest that a negative shock to regulatory sentiment is associated with large, persistent declines in future output and employment, whereas the responses associated with increased regulatory uncertainty are generally statistically insignificant or transitory. Economic outcomes are particularly sensitive to sentiment and uncertainty related to certain regulatory areas, including transportation, consumer safety and health, general business and trade, and energy regulation.