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School of Economics and Finance

No. 844: Does uncertainty affect real activity? Evidence from state-level

Haroon Mumtaz , Queen Mary University of London

December 25, 2017

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We use variation in the effect of US-wide or global uncertainty on state-level uncertainty to identify the impact of this shock on real activity. We …nd that increases in uncertainty do have an adverse impact on real income, employment and unemployment. Thus, uncertainty shocks can be a source of economic fluctuations.

J.E.L classification codes: C15,C32, E32

Keywords:Uncertainty shocks, Instrumental variables, US states