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

Abstract

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Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

“…and Caggiano, Castelnuovo, and Figueres (2017) use a SmoothTransition VAR to estimate the response of unemployment to uncertainty shocks in recessions. Caggiano, Castelnuovo, and Nodari (2017) employ the same methodology 6 to unveil the power of systematic monetary policy in response to uncertainty shocks in recessions and expansions.…”

“…However, some contributions in the literature point to nonlinearities unrelated to the ZLB. Uncertainty shocks may exert stronger e¤ects in recessions , Nodari (2014), Caggiano, Castelnuovo, and Nodari (2017), Caggiano, Castelnuovo, and Figueres (2017)). This may occur because of a lower e¤ec-tiveness of monetary policy in tackling negative shocks (see, e.g., and Tenreyro and Thwaites (2016)), and/or because of a stickier labor market during downturns (Cacciatore and Ravenna (2015)).…”

“…(2017), Caggiano, Castelnuovo, and Figueres (2017)) or in periods of high …nancial stress , , and Caldara, Fuentes-Albero, ). In fact, these papers and ours tackle di¤erent research questions.…”

Google It Up! A Google Trends-Based Uncertainty Index for the United States and Australia

“…Moreover, the U.S. economy experienced a severe recession in 2007-09, and it hit the zero lower bound (ZLB) in December 2008, where it remained for seven years. Recent contributions document that recessions and the ZLB may have indeed magni…ed the negative real e¤ects of uncertainty shocks in the United States (see Nodari (2014), Caggiano, Castelnuovo, and Groshenny (2014), Caggiano, Castelnuovo, and Nodari (2017), and Caggiano, Castelnuovo, and Figueres (2017) for the role played by recessions, and Basu and Bundick (2017) and Caggiano, Castelnuovo, and Pellegrino (2017) for that of the ZLB). Di¤erently, Australia is the only industrialized country belonging to the G10 which has not experienced a recession since 1991, and its policy rate has never hit the zero lower bound in recent times.…”

Nonlinear Models in Macroeconometrics

“…They show that the response to a …nancial shock is stronger and longer-lasting during …nancial stress than when the stress is low. Caggiano, Castelnuovo and Figueres (2017) consider the e¤ect of policy uncertainty on central macroeconomic variables of the US economy during di¤erent phases of the business cycle. The policy uncertainty is measured by an index constructed by Baker, Bloom and Davis (2016).…”