Firm Uncertainty Cycles and the Propagation of Nominal Shocks

Isaac Baley and Andrés Blanco

American Economic Journal: Macroeconomics, 2019, vol. 11, issue 1, 276-337

Abstract: We develop a framework to study the impact of idiosyncratic uncertainty on aggregate economic outcomes. Agents learn about individual characteristics, which receive infrequent, large, and persistent shocks. In this environment, idiosyncratic uncertainty moves in cycles, fluctuating between periods of high and low uncertainty; with additional fixed adjustment costs, the frequency and size of agents' actions also fluctuate in cycles. We apply our framework to study pricing behavior and the propagation of nominal shocks. We show, analytically and quantitatively, that idiosyncratic uncertainty cycles amplify the real effects of nominal shocks by generating cross-sectional dispersion in firms' adjustment frequency and in learning speed.

JEL-codes: D21 D81 D83 E31 E32 E52 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mac.20170402
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mac.20170402 (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... mPBaHzmqM3QD5JHNMc8t (application/zip)
https://www.aeaweb.org/articles/attachments?retrie ... B9soUfNet0mB5kb9MiED (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... Su4-e1WvHLLfNXmauMj7 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:11:y:2019:i:1:p:276-337

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().