Uncertainty Shocks and Business Cycle Research

Jesus Fernandez-Villaverde and Pablo Guerron

Review of Economic Dynamics, 2020, vol. 37 Supplement 1, S118-S166

Abstract: We review the literature on uncertainty shocks and business cycle research. First, we motivate the study of uncertainty shocks by documenting the presence of time-variation in the volatility of macroeconomic time series. Second, we enumerate the mechanisms that researchers have postulated to link uncertainty shocks and business cycles. Third, we outline how we can specify uncertainty shocks. Fourth, we postulate a real business cycle model augmented with financial frictions and uncertainty shocks. Fifth, we use the model to illustrate our previous discussions and to show how uncertainty shocks can be expansionary, a useful finding in several contexts. (Copyright: Elsevier)

Keywords: Uncertainty shocks; Business cycles; Financial frictions (search for similar items in EconPapers)
JEL-codes: E30 E32 E50 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (30)

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DOI: 10.1016/j.red.2020.06.005

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