Supply Shocks in the Fog: The Role of Endogenous Uncertainty

Anastasiia Antonova (), Mykhailo Matvieiev () and Céline Poilly ()
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Anastasiia Antonova: Aix Marseille Univ, CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/antonova
Mykhailo Matvieiev: Aix Marseille Univ, CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/matvieiev
Céline Poilly: Aix Marseille Univ, CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/poilly

No 2427, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: Endogenous uncertainty acts as an aggregate-demand amplification mechanism of supply shocks. Using U.S. data, we first stress that taking into account time-varying macroeconomic uncertainty leads to a significantly stronger recession and less inflationary pressures, in response to a TFP shock. In addition, we show empirically that households’ misperception increases during recessions. To rationalize these findings, we build a noisy-information New- Keynesian model where the precision of signals increases with economic activity. Pro-cyclical precision of information gives rise to an amplified precautionary saving behavior. A fullfledged model parametrized by using consumer-based forecast errors generates a demandlike recession of supply shock.

Keywords: uncertainty; imperfect information; Keynesian supply shocks. (search for similar items in EconPapers)
JEL-codes: D81 D83 E21 E32 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-10
New Economics Papers: this item is included in nep-dge
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