Uncertainty and the Economy: The Evolving Distributions of Aggregate Supply and Demand Shocks

Geert Bekaert, Eric Engstrom and Andrey Ermolov

American Economic Journal: Macroeconomics, 2026, vol. 18, issue 1, 102-48

Abstract: We estimate the time-varying distribution of aggregate supply (AS) and aggregate demand (AD) shocks. We distinguish between traditional Gaussian uncertainty and "bad" uncertainty, associated with negative skewness. The Great Moderation is driven by a reduction in the volatility of AS shocks and the Gaussian component of AD shocks. The increased role of "bad" demand uncertainty implies that the conditional skewness of GDP growth and inflation has decreased over time. The correlation between AS/AD shocks and shocks to their conditional volatilities is generally strongly negative. The correlation between inflation and growth shocks has increased due to a decrease in AS volatility.

JEL-codes: C52 D81 E12 E23 E31 E32 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:18:y:2026:i:1:p:102-48

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DOI: 10.1257/mac.20220076

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