Uncertainty shocks: it's a matter of habit

Dario Bonciani

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides empirical and theoretical evidence that uncertainty shocks have strong asymmetric effects on economic activity. Specifically, in the empirical analysis I find that uncertainty shocks dampen investment and consumption twice as much during recessions than in "normal" times. In the theoretical analysis I employ a sticky-prices general equilibrium model featuring external habit formation to show that the asymmetric effects of uncertainty shocks can be explained by countercyclical fluctuations in precautionary savings.

Keywords: Uncertainty Shocks; STVAR; External habits; Precautionary savings. (search for similar items in EconPapers)
JEL-codes: E21 E32 (search for similar items in EconPapers)
Date: 2014-10-19
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59370

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