Working Paper: CEPR ID: DP16317
Authors: Christiane Baumeister; Danilo Leiva-Leon; Eric Sims
Abstract: In this paper, we develop a novel dataset of weekly economic conditions indices for the 50 U.S. states going back to 1987 based on mixed-frequency dynamic factor models with weekly, monthly, and quarterly variables that cover multiple dimensions of state economies. We show that there is considerable heterogeneity in the length, depth, and timing of business cycles across individual states. We assess the role of states in national recessions and propose an aggregate indicator that allows us to gauge the overall weakness of the U.S. economy. We also illustrate the usefulness of these state-level indices for quantifying the main forces contributing to the economic collapse caused by the COVID-19 pandemic and for evaluating the effectiveness of federal economic policies like the Paycheck Protection Program.
Keywords: local economic conditions; government policies; weekly indicators; state economies; cross-state heterogeneity; mixed-frequency dynamic factor model; economic weakness index; Markov-switching recession probabilities
JEL Codes: C32; C55; E32; E66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Paycheck Protection Program (PPP) loans (H81) | state-level economic conditions (H79) |
| adverse labor market developments (J48) | economic collapse during COVID-19 pandemic (F65) |
| reduced mobility (J62) | economic collapse during COVID-19 pandemic (F65) |
| state-level economic conditions (H79) | national economic conditions (E66) |