Economics at your fingertips  

Really Uncertain Business Cycles

Nicholas Bloom (), Max Floetotto, Nir Jaimovich, Itay Saporta†Eksten and Stephen J. Terry
Authors registered in the RePEc Author Service: Max Flötotto ()

Econometrica, 2018, vol. 86, issue 3, 1031-1065

Abstract: We investigate the role of uncertainty in business cycles. First, we demonstrate that microeconomic uncertainty rises sharply during recessions, including during the Great Recession of 2007–2009. Second, we show that uncertainty shocks can generate drops in gross domestic product of around 2.5% in a dynamic stochastic general equilibrium model with heterogeneous firms. However, we also find that uncertainty shocks need to be supplemented by first†moment shocks to fit consumption over the cycle. So our data and simulations suggest recessions are best modelled as being driven by shocks with a negative first moment and a positive second moment. Finally, we show that increased uncertainty can make first†moment policies, like wage subsidies, temporarily less effective because firms become more cautious in responding to price changes.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (220) Track citations by RSS feed

Downloads: (external link)

Related works:
Working Paper: REALLY UNCERTAIN BUSINESS CYCLES (2014) Downloads
Working Paper: Really Uncertain Business Cycles (2013) Downloads
Working Paper: Really uncertain business cycles (2013) Downloads
Working Paper: Really Uncertain Business Cycles (2012) Downloads
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:

Ordering information: This journal article can be ordered from
https://www.economet ... ordering-back-issues

Access Statistics for this article

Econometrica is currently edited by Guido W. Imbens

More articles in Econometrica from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2022-08-15
Handle: RePEc:wly:emetrp:v:86:y:2018:i:3:p:1031-1065