Measuring and Explaining Economic Uncertainty Across US States and Metropolitan Areas

Abstract:

This paper constructs novel measures of economic uncertainty at the state and extended
metropolitan area (EMA) levels using forecast errors from pre-dictive models of state/EMA
growth. At the state level, we develop uncertainty measures based on sparse-group LASSO
MIDAS regressions, incorporating structural adjustments for crisis periods. For EMAs, we
estimate a stacked sg-LASSO MIDAS fixed effects model and apply a forecast error
decomposition to extract quarterly uncertainty shocks from annual GDP data. Our results
show that EMA uncertainty follows similar patterns as state and macroeconomic uncertainty
measures but exhibits distinct fluctuations in normal periods, providing new insights into
localized economic uncertainty.

Click on the link and sign up on the form.