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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
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https://doi.org/10.3982/ECTA10927

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
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