World Uncertainty Index
We have quite a few indexes and tools to measure the uncertainty of markets and economies; the World Uncertainty Index (WUI) is one of the relatively new measures that tracks uncertainty across the world. This is created by the IMF for analysis purposes. It is currently available for 143 countries.
The computation of this index is different from other similar tools, and appears a bit strange. Nonetheless, it is widely followed, irrespective of whether it is used or not.
It is computed by counting the word "uncertain (or its variant)" in the Economic Intelligence Unit country reports published by the IMF. It is then rescaled by multiplying by 1,000,000. A higher number means higher uncertainty and vice-versa. For example, an index of 200 corresponds to the word uncertainty accounting for 0.02 percent of all words, which also means about 2 words per report. This is due to the fact that the Economic Intelligence Unit report, usually, is 10,000 words long.
The report is based on quarterly data received from countries.
The following shows the index from Q1 of 1990 to Q4 of 2020.
The above index in itself does not tell a compelling story, unless the source of the uncertainty is also described or mentioned. The following graph shows the index along with the various events, which most likely caused uncertainty.
END OF MY NOTES