  This paper constructs a global economic policy uncertainty index through the
principal component analysis of the economic policy uncertainty indices for
twenty primary economies around the world. We find that the PCA-based global
economic policy uncertainty index is a good proxy for the economic policy
uncertainty on a global scale, which is quite consistent with the GDP-weighted
global economic policy uncertainty index. The PCA-based economic policy
uncertainty index is found to be positively related with the volatility and
correlation of the global financial market, which indicates that the stocks are
more volatile and correlated when the global economic policy uncertainty is
higher. The PCA-based global economic policy uncertainty index performs
slightly better because the relationship between the PCA-based uncertainty and
market volatility and correlation is more significant.
