US Economic Policy Uncertainties and Economic Conditions of Fifty (50) US States : A Semi-parametric Smooth Varying-Coefficient Approach

We use the economic conditions of the federated states in the U.S. to offer new insights into the heterogeneity dynamics of the widely held assumption of the negative effect of EPU on economic activity. We use a semi-parametric smooth varying coefficient model (SVCM) to show that states with relatively more robust economic activity are likely to be more vulnerable to uncertainty. We examine the role of the "effect modifier" in the EPU-economic condition nexus and find its validity to be heterogeneous