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Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach

Author

Listed:
  • Giovanni Caggiano

    (University of Padova)

  • Efrem Castelnuovo

    (University of Padova)

  • Juan Manuel Figueres

    (University of Padova)

Abstract
We model U.S. 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 confi?rms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo & Juan Manuel Figueres, 2016. "Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach," "Marco Fanno" Working Papers 0209, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0209
    as

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    References listed on IDEAS

    as
    1. Nodari, Gabriela, 2014. "Financial regulation policy uncertainty and credit spreads in the US," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 122-132.
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    3. Caggiano, Giovanni & Castelnuovo, Efrem & Groshenny, Nicolas, 2014. "Uncertainty shocks and unemployment dynamics in U.S. recessions," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 78-92.
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    7. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    8. James Morley & Jeremy Piger, 2012. "The Asymmetric Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 208-221, February.
    9. Scott R. Baker & Nicholas Bloom & Brandice Canes-Wrone & Steven J. Davis & Jonathan Rodden, 2014. "Why Has US Policy Uncertainty Risen since 1960?," American Economic Review, American Economic Association, vol. 104(5), pages 56-60, May.
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    13. Matteo Cacciatore, 2015. "Uncertainty and the Business Cycle," 2015 Meeting Papers 1440, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Economic Policy Uncertainty Shocks; Unemployment Dynamics; Smooth Transition Vector AutoRegressions; Recessions; Expansions.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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