Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions

Giovanni Caggiano, Efrem Castelnuovo and Nicolas Groshenny

Department of Economics - Working Papers Series from The University of Melbourne

Abstract: What are the effects of uncertainty shocks on unemployment dynamics? We answer this question by estimating non-linear (Smooth-Transition) VARs with post-WWII U.S. data. 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. The ability of different classes of DSGE models to replicate our results is discussed.

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: 59 pages
Date: 2015-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Uncertainty shocks and unemployment dynamics in U.S. recessions (2014)
Working Paper: 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:mlb:wpaper:1195

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