Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions

Giovanni Caggiano, Efrem Castelnuovo and Nicolas Groshenny

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: We investigate the effects of uncertainty shocks on unemployment dynamics in the post- WWII U.S. recessions via non-linear (Smooth-Transition) VARs. The relevance of uncertainty shocks is found to be much larger than that predicted by standard linear VARs in terms of (i) magnitude of the reaction of the unemployment rate to such shocks, and (ii) contribution to the variance of the prediction errors of unemployment at business cycle frequencies. We discuss the ability of different classes of DSGE models to replicate our results.

Keywords: Uncertainty shocks; unemployment dynamics; Smooth Transition Vector-AutoRegressions; recessions (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 (search for similar items in EconPapers)
Pages: 59pp
Date: 2014-05
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (336)

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Related works:
Working Paper: Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions (2015)
Journal Article: Uncertainty shocks and unemployment dynamics in U.S. recessions (2014)
Working Paper: Uncertainty shocks and unemployment dynamics in U.S. recessions (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2014n12

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