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The time-varying and volatile macroeconomic effects of immigration

Published online by Cambridge University Press:  11 November 2021

Huachen Li
Huachen Li*
Affiliation:
Department of Economics, Kenyon College, 202 College Park St, Gambier, OH 43022, USA Email: li8@kenyon.edu
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Abstract

This paper studies the impact of immigration on the US macroeconomy. I identify structural vector autoregressions (SVARs) with time-varying parameters (TVPs) and stochastic volatility (SV) using a novel set of restrictions. The TVP-SV-SVARs are estimated on a quarterly sample including average labor productivity (ALP), hours worked, immigration, consumption, and term spread from 1953 to 2017. An immigration supply shock increases domestic ALP and hours worked over the business cycle horizons. Movements in immigration are explained by its own shock and to a lesser extent by the productivity and news shocks. IRFs driven by these shocks vary over the sample, especially around changes in immigration policy such as the Immigration Act of 1990. In contrast, the forecast error variance decompositions exhibit little change over the sample. Immigration plays an important role in the US macroeconomy.

Keywords

Immigrationproductivitytime-varying parametersstochastic volatilitySVARE24F22J61
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 1 , January 2023 , pp. 72 - 92
Copyright
© The Author(s), 2021. Published by Cambridge University Press

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Footnotes

†

This paper is based on the second chapter of my Ph.D. dissertation. I am indebted to my dissertation advisor Jim Nason formany valuable discussions. The thoughtful suggestions of Giuseppe Fiori, Doug Pearce, Xiaoyong Zheng, and participants at the N.C. State Macroeconomic Graduate Workshop are gratefully acknowledged. My thanks also go to the editor,William Barnett, the associate editor, and two reviewers for their comments which have greatly improved the paper. All remaining errors are my own.

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