Journal
ECONOMICS LETTERS
Volume 151, Issue -, Pages 31-34Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.econlet.2016.12.002
Keywords
Economic policy uncertainty shocks; Unemployment dynamics; Smooth transition vector autoregressions; Recessions; Expansions
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Funding
- Australian Research Council via the Discovery Grant [DP160102281]
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We model US 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. (C) 2016 Elsevier B.V. All rights reserved.
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