Uncertainty, Financial Frictions, and Nominal Rigidities: A Quantitative Investigation

Ambrogio Cesa‐bianchi and Emilio Fernandez‐corugedo
Authors registered in the RePEc Author Service: Ambrogio Cesa-Bianchi

Journal of Money, Credit and Banking, 2018, vol. 50, issue 4, 603-636

Abstract: Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro‐uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro‐uncertainty) in a financial accelerator dynamic stochastic general equilibrium model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time‐series properties of macro‐ and micro‐uncertainty are estimated using U.S. aggregate and firm‐level data, respectively. While surprise increases in micro‐uncertainty have a larger impact on total output than macro‐uncertainty, these can only account for a small (but nontrivial) share of output volatility.

Date: 2018
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Citations: View citations in EconPapers (30)

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https://doi.org/10.1111/jmcb.12505

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Working Paper: Uncertainty, Financial Frictions and Nominal Rigidities: A Quantitative Investigation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:50:y:2018:i:4:p:603-636

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