Surprise and Uncertainty Indexes : Real-Time Aggregation of Real-Activity Macro Surprises

I construct two daily, real-time, real activity indexes for the United States, Euro area, the United Kingdom, Canada, and Japan: (i) a surprise index that summarizes recent economic data surprises and measures optimism/pessimism about the state of the economy, and (ii) an uncertainty index that measures uncertainty related to the state of the economy. The surprise index preserves the properties of the underlying series in affecting asset prices, with the advantage of being a parsimonious summary measure of real-activity surprises. For the United States, the real-activity uncertainty index is compared to other proxies commonly used to measure uncertainty to show that when uncertainty is strictly related to real activity, it has a potentially milder impact on economic activity than when it also relates to the financial sector