Economic policy uncertainty and unemployment in the United States: a nonlinear approach

Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres

doi:10.1016/j.econlet.2016.12.002

Economic policy uncertainty and unemployment in the United States: a nonlinear approach

Giovanni Caggiano, Efrem Castelnuovo, Juan Manuel Figueres

Department of Economics

Research output: Contribution to journal › Article › Research › peer-review

301 Citations (Scopus)

Abstract

We model US post-WWII monthly data with a Smooth Transition VAR model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions. We find the response of unemployment to be statistically and economically larger in recessions. A state-contingent forecast error variance decomposition analysis confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

Original language	English
Pages (from-to)	31-34
Number of pages	4
Journal	Economics Letters
Volume	151
DOIs	https://doi.org/10.1016/j.econlet.2016.12.002
Publication status	Published - 1 Feb 2017

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

Economic policy uncertainty shocks
Expansions
Recessions
Smooth transition vector autoregressions
Unemployment dynamics

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10.1016/j.econlet.2016.12.002

Cite this

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abstract = "We model US post-WWII monthly data with a Smooth Transition VAR model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions. We find the response of unemployment to be statistically and economically larger in recessions. A state-contingent forecast error variance decomposition analysis confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.",

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N2 - We model US post-WWII monthly data with a Smooth Transition VAR model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions. We find the response of unemployment to be statistically and economically larger in recessions. A state-contingent forecast error variance decomposition analysis confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

AB - We model US post-WWII monthly data with a Smooth Transition VAR model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions. We find the response of unemployment to be statistically and economically larger in recessions. A state-contingent forecast error variance decomposition analysis confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

KW - Economic policy uncertainty shocks

KW - Expansions

KW - Recessions

KW - Smooth transition vector autoregressions

KW - Unemployment dynamics

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M3 - Article

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VL - 151

SP - 31

EP - 34

JO - Economics Letters

JF - Economics Letters

ER -

Economic policy uncertainty and unemployment in the United States: a nonlinear approach

Abstract

UN SDGs

Keywords

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