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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 () and Itay Saporta Eksten ()

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.

Keywords: uncertainty; adjustment costs; and business cycles. (search for similar items in EconPapers)
JEL-codes: D92 E22 D8 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2014-03
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Downloads: (external link)
https://www2.census.gov/ces/wp/2014/CES-WP-14-18.pdf First version, 2014 (application/pdf)

Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:14-18

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