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

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  • Giovanni Caggiano

    (University of Padova)

  • Efrem Castelnuovo

    (University of Padova)

  • Juan Manuel Figueres

    (University of Padova)

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 confi?rms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo & Juan Manuel Figueres, 2016. "Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach," "Marco Fanno" Working Papers 0209, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0209
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    References listed on IDEAS

    as
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    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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