The Impact of Uncertainty Shocks on State-Level Employment
23 Pages Posted: 6 Apr 2022 Last revised: 12 May 2022
Date Written: February 22, 2022
Using U.S. data over the period 1960Q3 - 2019Q4 we estimate a structural factor-augmented vector autoregressive model and find that a one standard deviation shock to macroeconomic uncertainty generates declines in state-level employment growth that range from -0.02 to -0.12 percentage points at their peak negative response. Cross-sectional regressions show that industry mix is an important channel through which uncertainty shocks affect employment growth. In particular, a state with a larger manufacturing sector experiences a larger decline in employment growth.
Keywords: FAVAR, Uncertainty, Employment, State-level Effects
JEL Classification: E24, J01, L60
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