Persistence of state-level uncertainty of the United States: The role of climate risks

Recent theoretical developments tend to suggest that rare disaster risks enhance the persistence of uncertainty. Given this, we analyse impact climate (temperature growth or its volatility), as proxies for such unusual events, on economic and policy-related uncertainty 50 US states in a panel data set-up, over monthly period 1984:03 2019:12. Using impulse response functions (IRFs) from regime-based local projections (LPs) model, show an shock itself is not only bigger magnitude when economy upper-regime temperature volatility, but also, line with theory, more persistent. Our results have important policy implications.