Really Uncertain Business Cycles
Nicholas Bloom (),
Itay Saportaâ€ Eksten and
Stephen J. Terry
Authors registered in the RePEc Author Service: Max Flötotto ()
Econometrica, 2018, vol. 86, issue 3, 1031-1065
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 2007â€“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 firstâ€ 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 firstâ€ moment policies, like wage subsidies, temporarily less effective because firms become more cautious in responding to price changes.
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Working Paper: REALLY UNCERTAIN BUSINESS CYCLES (2014)
Working Paper: Really Uncertain Business Cycles (2013)
Working Paper: Really uncertain business cycles (2013)
Working Paper: Really Uncertain Business Cycles (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:86:y:2018:i:3:p:1031-1065
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