Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?

Sydney Ludvigson, Sai Ma and Serena Ng ()

No 21803, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Uncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response to output shocks, while uncertainty about financial markets is a likely source of output fluctuations. But the findings also suggest that macroeconomic uncertainty plays an important role in recessions, by substantially amplifying downturns caused by other shocks.

JEL-codes: E00 E32 E44 G01 G12 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (167)

Published as Sydney C. Ludvigson & Sai Ma & Serena Ng, 2021. "Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?," American Economic Journal: Macroeconomics, vol 13(4), pages 369-410.

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Journal Article: Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response? (2021)
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