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Economic Policy Uncertainty index for Cyprus reached highest point back in April

05/10/2022 07:29

The Economic Policy Uncertainty (EPU) index for Cyprus reached its highest point so far in April 2022, after the Russian invasion in Ukraine last February. The second highest EPU level was recorded in April 2020, one month after the first confirmed COVID-19 case in the country, 345.27.

According to data published by the Economics Research Center (ERC) of the University of Cyprus, the EPU index is available for almost 30 countries, including 11 member states of the European Union, among which Cyprus. The construction of the index uses the number of articles that contain at least one word for each of the following categories: Economy (E), Policy (P), and Uncertainty (U).

The value of the EPU index for Cyprus increased rapidly from 175.68 in February 2020 to 345.27 in April 2020. Uncertainty for economic policy in Cyprus exceeded any past value in April 2022, reaching 364.80, due to the international economic climate, after the war in Ukraine.

The publication provides data from earlier years in Cyprus, which show that in December 2012 the EPU index rose to 240.34, in contrast to the mean of the index during the period before the global financial crisis (October 1999 - December 2008) which was 85.58, and in March 2013, the month of the bank deposits’ haircut (bail-in), and the implementation of capital controls, the EPU index was equal to 290.97.

Estimations from different countries, including Cyprus, show that an increase in uncertainty (of one standard deviation) affects negatively especially investment, while the responses of GDP and employment are, according to the ERC also significant and estimated at around 1% and 0.5% respectively, with these responses still obvious even after one year, but with diminishing value.