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

Xin Sheng, Rangan Gupta, Wenting Liao, Oguzhan Cepni

Research output: Working paperResearch

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.
Original languageEnglish
Place of PublicationPretoria
PublisherUniversity of Pretoria
Number of pages13
Publication statusPublished - Mar 2024
SeriesWorking Paper Series / Department of Economics. University of Pretoria
Number2024-10

Keywords

  • Economic conditions
  • Uncertainty
  • Climate risks
  • US states
  • Linear and nonlinear local projections models

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