Persistence of State-Level Uncertainty of the United States: The Role of Climate Risks

Xin Sheng (), Rangan Gupta and Oguzhan Cepni
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Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, United Kingdom

No 202208, Working Papers from University of Pretoria, Department of Economics

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)
Pages: 10 pages
Date: 2022-02
New Economics Papers: this item is included in nep-env and nep-his
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Citations: View citations in EconPapers (19)

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