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Persistence of State-Level Uncertainty of the United States: The Role of Climate Risks

Author

Listed:
  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, United Kingdom)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Oguzhan Cepni

    (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey)

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.

Suggested Citation

  • Xin Sheng & Rangan Gupta & Oguzhan Cepni, 2022. "Persistence of State-Level Uncertainty of the United States: The Role of Climate Risks," Working Papers 202208, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202208
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    Cited by:

    1. Gupta, Rangan & Nel, Jacobus & Salisu, Afees A. & Ji, Qiang, 2023. "Predictability of economic slowdowns in advanced countries over eight centuries: The role of climate risks," Finance Research Letters, Elsevier, vol. 54(C).
    2. Liao, Wenting & Sheng, Xin & Gupta, Rangan & Karmakar, Sayar, 2024. "Extreme weather shocks and state-level inflation of the United States," Economics Letters, Elsevier, vol. 238(C).
    3. Bonato, Matteo & Cepni, Oguzhan & Gupta, Rangan & Pierdzioch, Christian, 2023. "Climate risks and state-level stock market realized volatility," Journal of Financial Markets, Elsevier, vol. 66(C).
    4. Afees Salisu & Tirimisiyu Oloko, 2023. "Climate Risk Measures - A Review," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 4(1), pages 1-4.
    5. Cepni, Oguzhan & Christou, Christina & Gupta, Rangan, 2023. "Forecasting national recessions of the United States with state-level climate risks: Evidence from model averaging in Markov-switching models," Economics Letters, Elsevier, vol. 227(C).
    6. Fava, Santino Del & Gupta, Rangan & Pierdzioch, Christian & Rognone, Lavinia, 2024. "Forecasting international financial stress: The role of climate risks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    7. Oguzhan Cepni & Luis A. Gil-Alana & Rangan Gupta & Onur Polat, 2024. "Time-Variation in the Persistence of Carbon Price Uncertainty: The Role of Carbon Policy Uncertainty," Working Papers 202446, University of Pretoria, Department of Economics.
    8. Xin Sheng & Rangan Gupta & Wenting Liao & Oguzhan Cepni, 2024. "The Effects of Uncertainty on Economic Conditions across US States: The Role of Climate Risks," Working Papers 202410, University of Pretoria, Department of Economics.
    9. Oguzhan Cepni & Rangan Gupta & Wenting Liao & Jun Ma, 2024. "Climate risks and forecastability of the weekly state‐level economic conditions of the United States," International Review of Finance, International Review of Finance Ltd., vol. 24(1), pages 154-162, March.
    10. Elie Bouri & Rangan Gupta & Christian Pierdzioch, 2024. "Modeling the Presidential Approval Ratings of the United States using Machine-Learning: Does Climate Policy Uncertainty Matter?," Working Papers 202406, University of Pretoria, Department of Economics.
    11. Xin Sheng & Rangan Gupta & Oguzhan Cepni, 2023. "Time-Varying Effects of Extreme Weather Shocks on Output Growth of the United States," Working Papers 202324, University of Pretoria, Department of Economics.
    12. Zhang, Pengcheng & Kong, Deli & Xu, Kunpeng & Qi, Jiayin, 2024. "Global economic policy uncertainty and the stability of cryptocurrency returns: The role of liquidity volatility," Research in International Business and Finance, Elsevier, vol. 67(PB).
    13. Lin, Boqiang & Zhao, Hengsong, 2023. "Tracking policy uncertainty under climate change," Resources Policy, Elsevier, vol. 83(C).
    14. Kejin Wu & Sayar Karmakar & Rangan Gupta & Christian Pierdzioch, 2023. "Climate Risks and Stock Market Volatility Over a Century in an Emerging Market Economy: The Case of South Africa," Working Papers 202326, University of Pretoria, Department of Economics.
    15. Afees A. Salisu & Ahamuefula E.Oghonna & Rangan Gupta & Oguzhan Cepni, 2024. "Energy Market Uncertainties and US State-Level Stock Market Volatility: A GARCH-MIDAS Approach," Working Papers 202409, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Uncertainty; Climate Risks; US States; Nonlinear Local Projections; Impulse Response Functions;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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