The argument that policy risk, i.e. uncertainty about monetary and ﬁscal policy, has been holding back the economic recovery in the U.S. during the Great Recession has a large popular appeal. We analyze the role of policy risk in explaining business cycle ﬂuctuations by using an estimated New Keynesian model featuring policy risk as well as uncertainty about technology. We directly measure uncertainty from aggregate time series using Sequential Monte Carlo Methods. While we ﬁnd considerable evidence of policy risk in the data, we show that the “pure uncertainty”-eﬀect of policy risk is unlikely to play a major role in business cycle ﬂuctuations. In the estimated model, output eﬀects are relatively small due to i) dampening general equilibrium eﬀects that imply a low ampliﬁcation and ii) counteracting partial eﬀects of uncertainty. Finally, we show that policy risk has eﬀects that are an order of magnitude larger than the ones of uncertainty about aggregate TFP.