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The Effects of Uncertainty on Economic Conditions across US States: The Role of Climate Risks

Author

Listed:
  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, EK)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Wenting Liao

    (School of Finance, Renmin University of China, Beijing, People's Republic of China)

  • Oguzhan Cepni

    (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Ostim Technical University, Ankara, Turkiye)

Abstract

We analyse the impact of uncertainty on the Economic Conditions Index (ECI) of the 50 US states in a panel data set-up, over the weekly period of the 3rd week of April 1987 to the 4th week of March 2023. Using impulse response functions (IRFs) from a linear local projections (LP) model, we show that uncertainty, as captured by the stochastic volatility (SV) of the ECIs, negatively impacts ECI in a statistically significant manner. More importantly, using a nonlinear LP model, the IRFs reveal that the adverse effect of uncertainty is significantly much stronger under the high-regime of climate risks when compared to the low-regime of the same. Understandably, our results have important policy implications.

Suggested Citation

  • Xin Sheng & Rangan Gupta & Wenting Liao & Oguzhan Cepni, 2024. "The Effects of Uncertainty on Economic Conditions across US States: The Role of Climate Risks," Working Papers 202410, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202410
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic conditions; Uncertainty; Climate risks; US states; Linear and nonlinear local projections models;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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