Belgium Monthly Index

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We are pleased to host three new EPU indices for Belgium developed by Samuel Borms, Kris Boudt, Jeroen Van Pelt, and Andres Algaba. Their approach is laid out in the research note "The Economic Policy Uncertainty Index for Flanders, Wallonia and Belgium", available here.

Belgium consists of a Dutch-speaking region in the north (Flanders), a French-speaking region in the south (Wallonia), and a bilingual region in the centre (Brussels-Capital). The main newspapers in Brussels are the same as in Flanders and Wallonia. Hence, EPU indices are first computed separately for Flanders and Wallonia. The indices for Flanders are based on eight Flemish newspapers (De Tijd, De Standaard, De Morgen, Het Laatste Nieuws, Het Nieuwsblad, Gazet van Antwerpen, Het Belang van Limburg, and Het Volk), and for Wallonia on five Walloon newspapers (L'Avenir, La Dernière Heure, La Libre Belgique, Le Soir, and L'Echo). The resulting index for Belgium is an average of the Flanders EPU index and the Wallonia EPU index. The indices span from January 2001 to the present, at a monthly interval.

The construction follows the procedure in "Measuring Economic Policy Uncertainty" by Scott Baker, Nicholas Bloom, and Steven Davis, reflecting normalized frequency counts of news articles related to economic policy uncertainty. The newspaper-level Flanders and Wallonia indices (frequency counts scaled by the total number of articles per month) are normalized to unit standard deviation, and the respective averaged series is normalized to mean 100, both for a reference period ranging from the start of the time series up to December 2010. The index for Belgium is labeled in the annotated chart.

The keywords for article selection were defined starting from terms used in the Dutch Economic Policy Uncertainty Index developed by Lars Kroese, Suzanne Kok and Jante Parlevliet. Next, candidate words to add to the keywords were generated through an existing word embedding space. The authors then manually sifted through the propositions and decided on a word list of around 150 words combined for the economic (E), policy (P) and uncertainty (U) categories. Instead of doing the same for the French keywords, the authors opted to translate the Flemish words to French to maximize keywords equivalence.

The constructed EPU indices clearly reflect national as well as worldwide evolutions. This duality is no surprise as Belgium lies at the heart of Europe, with Brussels housing for instance the headquarters of the European Commission. The validation exercise shows sufficient correlation with EPU indices for the Netherlands, Germany, and Europe, as well as stock market volatility, and the official Belgian consumer confidence indicator. The research note also presents an automated news content analysis, using noun and proper noun extraction together with biterm topic modeling. Such analysis helps to understand the underlying sources of uncertainty explicitly mentioned in the news articles. Lastly, the authors show the evolution of daily EPU news coverage during early 2020, and unveil interesting dynamics about the rise and possible fall of uncertainty in light of the COVID-19 pandemic.