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Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty

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journal contribution
posted on 22.10.2018 by Rangan Gupta, J. Ma, Marian Risse, Mark Wohar
This paper analyses the role of a news-based measure of economic policy uncertainty (EPU) in explaining time-varying co-movements in economic activity and volatility of 48 US states and 51 largest MSAs. In this regard, we, first, estimate a dynamic factor model with time-varying loadings and stochastic volatility (DFM-TV-SV). Then, in the second step, we use a quantile-on-quantile (QQ) predictive regression model to capture the effect of EPU on the common factor and stochastic volatility derived from the DFM-TV-SV for the states and MSAs. Our results show that EPU has a significant negative effect on the common economic activity of both the states and MASs, and it also significantly increases the common volatility. However, the impact of uncertainty varies substantially depending on the initial states (quantiles) of both common output or volatility and EPU. Thus, our results tend to suggest that policy design should be state-dependent.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Macroeconomics

Volume

57

Pages

317 - 337

Citation

GUPTA, R. ... et al, 2018. Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty. Journal of Macroeconomics, 57, pp.317-337.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

21/06/2018

Publication date

2018

Notes

This paper was accepted for publication in the journal Journal of Macroeconomics and the definitive published version is available at https://doi.org/10.1016/j.jmacro.2018.06.009.

ISSN

0164-0704

Language

en

Exports