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Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions

Author

Listed:
  • Giovanni Caggiano

    (Department of Economics and Management, University of Padova)

  • Efrem Castelnuovo

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Department of Economics and Management, University of Padova; and Research Unit, Bank of Finland)

  • Nicolas Groshenny

    (School of Economics, The University of Adelaide)

Abstract

We investigate the effects of uncertainty shocks on unemployment dynamics in the post- WWII U.S. recessions via non-linear (Smooth-Transition) VARs. 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. We discuss the ability of different classes of DSGE models to replicate our results.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo & Nicolas Groshenny, 2014. "Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions," Melbourne Institute Working Paper Series wp2014n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2014n12
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty shocks; unemployment dynamics; Smooth Transition Vector-AutoRegressions; recessions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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