A news-based economic policy uncertainty index for Nigeria

Abstract

In this study, we develop the first daily news-based Economic Policy Uncertainty (EPU) index for Nigeria, which was previously not covered in recent EPU indices. The need to track economic uncertainties in Nigeria becomes crucial for investment and policy, especially with the renewed interest in the country as an important investment destination. To construct the EPU index, we use relevant keywords from articles in prominent newspapers in the country, covering the aftermath of the global financial crisis and the COVID pandemic, with a data scope of January 2010 to November 2022. We evaluate the predictability of the index by examining its connection with economic and financial variables like exchange rates, stock prices, and inflation in Nigeria. The results are robust to alternative model specifications, data frequencies, and multiple forecast horizons. We hope to extend this exercise to other useful indices, including Geopolitical Risk, Financial Stress Indicators, and Monetary Policy Uncertainty, which are not readily available for Africa, including Nigeria.