Uncertainty and the geography of the great recession

The variation in a state-level measure of local economic-policy uncertainty during the 2007–2009 recession matches the cross-sectional distribution of unemployment outcomes in this period. This relationship is robust to numerous controls for other determinants of labor market outcomes. Using preexis...

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Bibliographic Details
Published in:Journal of monetary economics 2016-12, Vol.84, p.84-93
Main Authors: Shoag, Daniel, Veuger, Stan
Format: Article
Language:English
Subjects:
Great recession
State government
Uncertainty
Unemployment
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Summary:The variation in a state-level measure of local economic-policy uncertainty during the 2007–2009 recession matches the cross-sectional distribution of unemployment outcomes in this period. This relationship is robust to numerous controls for other determinants of labor market outcomes. Using preexisting state institutions that amplified uncertainty, we find evidence that this type of local uncertainty played a causal role in increasing unemployment. Together, these results suggest that increased uncertainty contributed to the severity of the Great Recession. •Local policy uncertainty during the Great Recession matches unemployment outcomes.•This relationship is robust to numerous controls.•Increased uncertainty contributed to the severity of the Great Recession.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2016.11.002