Is economic policy muddled? Some economists argue that confusion on the outlook for a range of policy fronts, such as regulation and tax policy, has been weighing on the economy. But how does one define policy uncertainty? A Stanford economist (Nicholas Bloom) and a Ph.D. candidate (Scott Baker) offer a possible solution with an attempt to quantify the concept in a new benchmark: Index of Economic Policy Uncertainty (EPU). According to the index’s latest data through January, U.S. policy uncertainty has fallen sharply.

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What’s next for Europe?
CNN | Feb 6
The European Central Bank has thrown cold water on the sovereign debt crisis by injecting billions of euros into the banking system, but the embers of the crisis are still smoldering. S&P says the eurozone has a 40% chance of entering a severe recession this year, with the economy projected to shrink by as much as 2%. Unless comprehensive reform creates a much tighter fiscal union, uncertainty will continue to cast a dark cloud over Europe’s economic future.
German Manufacturing Orders Rise
The Wall Street Journal | Feb 7
German manufacturing orders rose more than expected in December, driven by a surge in demand from outside the euro zone, in the latest sign that Europe’s largest economy may yet avoid recession despite the euro zone’s debt crisis. New orders rose 1.7% on the month in adjusted terms, after slumping by a downwardly revised 4.9% in November, data from the economics ministry showed Monday…. While German orders data are “very volatile”, the latest figures “seem to suggest that factory activity has not collapsed,” even after German economic growth moderated in the fourth quarter “as demand from abroad was hit by the global slowdown,” said Annalisa Piazza, a strategist at Newedge in London. “If anything, a slight pick-up is expected in the first quarter of 2012,” she said.

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