Persistence of state-level uncertainty of the United States: The role of climate risks

Xin Sheng, Rangan Gupta and Oguzhan Cepni

Economics Letters, 2022, vol. 215, issue C

Abstract: Recent theoretical developments tend to suggest that rare disaster risks enhance the persistence of uncertainty. Given this, we analyse the impact of climate risks (temperature growth or its volatility), as proxies for such unusual events, on the persistence of economic and policy-related uncertainty of the 50 US states in a panel data set-up, over the monthly period of 1984:03 to 2019:12. Using impulse response functions (IRFs) from a regime-based local projections (LPs) model, we show that the impact of an uncertainty shock on uncertainty itself is not only bigger in magnitude when the economy is in the upper-regime of temperature growth or its volatility, but is also, in line with theory, is more persistent. Our results have important policy implications.

Keywords: Uncertainty; Climate risks; US states; Nonlinear local projections; Impulse response functions (search for similar items in EconPapers)
JEL-codes: C23 D80 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Persistence of State-Level Uncertainty of the United States: The Role of Climate Risks (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:215:y:2022:i:c:s0165176522001276

DOI: 10.1016/j.econlet.2022.110500

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