Persistence of state-level uncertainty of the United States: The role of climate risks

Sheng, Xin and Gupta, Rangan and Çepni, Oğuzhan (2022) Persistence of state-level uncertainty of the United States: The role of climate risks. Economics Letters, 215. p. 110500. ISSN 0165-1765

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Official URL: http://dx.doi.org/10.1016/j.econlet.2022.110500

Abstract

Recent theoretical developments tend to suggest that rare disaster risks enhance the persistence of uncertainty. Given this, we analyse the impact of climate risks (temperature growth or its volatility), as proxies for such unusual events, on the persistence of economic and policy-related uncertainty of the 50 US states in a panel data set-up, over the monthly period of 1984:03 to 2019:12. Using impulse response functions (IRFs) from a regime-based local projections (LPs) model, we show that the impact of an uncertainty shock on uncertainty itself is not only bigger in magnitude when the economy is in the upper-regime of temperature growth or its volatility, but is also, in line with theory, is more persistent. Our results have important policy implications.

Item Type: Journal Article
Keywords: Uncertainty, Climate risks, US states, Nonlinear local projections, Impulse response functions
Faculty: Faculty of Business & Law
SWORD Depositor: Symplectic User
Depositing User: Symplectic User
Date Deposited: 09 May 2022 16:45
Last Modified: 31 May 2022 16:17
URI: https://arro.anglia.ac.uk/id/eprint/707566

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