Asymmetric Dynamics between Uncertainty and Unemployment Flows in the United States

Ali Ahmed (), Mark Granberg, Victor Troster and Gazi Uddin
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Ali Ahmed: Division of Economics, Department of Management and Engineering, Linköping University, Postal: Linköping University, SE-581 83 Linköping, Sweden
Mark Granberg: Division of Economics, Department of Management and Engineering, Linköping University, Postal: Linköping University, SE-581 83 Linköping, Sweden

No 7, LiU Working Papers in Economics from Linköping University, Division of Economics, Department of Management and Engineering

Abstract: This paper examines how different uncertainty measures affect the unemployment level, inflow, and outflow in the U.S. across all states of the business cycle. We employ linear and nonlinear causality-in-quantile tests to capture a complete picture of the effect of uncertainty on U.S. unemployment. To verify whether there are any common effects across different uncertainty measures, we use monthly data on four uncertainty measures and on U.S. unemployment from January 1997 to August 2018. Our results corroborate the general predictions from a search and matching framework of how uncertainty affects unemployment and its flows. Fluctuations in uncertainty generate increases (upper-quantile changes) in the unemployment level and in the inflow. Conversely, shocks to uncertainty have a negative impact on U.S. unemployment outflow. Therefore, the effect of uncertainty is asymmetric depending on the states (quantiles) of U.S. unemployment and on the adopted unemployment measure. Our findings suggest state-contingent policies to stabilize the unemployment level when large uncertainty shocks occur.

Keywords: Uncertainty; Unemployment; Nonlinear dynamics; Granger-causality; Quantile regression; U.S. labor market. (search for similar items in EconPapers)
JEL-codes: C22 D80 E24 E32 J64 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-05-29
New Economics Papers: this item is included in nep-lab, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Asymmetric dynamics between uncertainty and unemployment flows in the United States (2022)
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