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

Giovanni Caggiano, Efrem Castelnuovo and Juan Figueres

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

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 confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

Keywords: Economic policy uncertainty shocks; unemployment dynamics; Smooth Transition Vector AutoRegressions; recessions; expansions (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 (search for similar items in EconPapers)
Pages: 19pp
Date: 2017-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (186)

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Related works:
Working Paper: Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach (2018)
Journal Article: Economic policy uncertainty and unemployment in the United States: A nonlinear approach (2017)
Working Paper: Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2017n02

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