The Origins and Effects of Macroeconomic Uncertainty

Francesco Bianchi, Howard Kung and Mikhail Tirskikh

No 13450, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession.

Keywords: Uncertainty shocks; Business cycles; Term structure of interest rates; Time-varying risk premia (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 G12 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: The Origins and Effects of Macroeconomic Uncertainty (2019)
Working Paper: The Origins and Effects of Macroeconomic Uncertainty (2018)
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