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

19 Pages Posted: 17 Jan 2017

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Efrem Castelnuovo

University of Melbourne - Department of Economics

Juan Manuel Figueres

University of Padua - Department of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 13, 2017

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

JEL Classification: C32, E32, E52

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Figueres, Juan Manuel, Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach (January 13, 2017). Melbourne Institute Working Paper No. 2/17. Available at SSRN: https://ssrn.com/abstract=2899887 or http://dx.doi.org/10.2139/ssrn.2899887

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padua ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Efrem Castelnuovo (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Juan Manuel Figueres

University of Padua - Department of Economics and Management ( email )

Via del Santo, 33
Padova, 35123
Italy

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