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Really Uncertain Business Cycles

Nicholas Bloom (), Max Floetotto, Nir Jaimovich (), Itay Saporta-Eksten and Stephen Terry
Authors registered in the RePEc Author Service: Max Flötotto () and Itay Saporta Eksten ()

CEP Discussion Papers from Centre for Economic Performance, LSE

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 (search for similar items in EconPapers)
JEL-codes: E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cwa, nep-dge and nep-mac
Date: 2013-03
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http://cep.lse.ac.uk/pubs/download/dp1195.pdf (application/pdf)

Related works:
Working Paper: REALLY UNCERTAIN BUSINESS CYCLES (2014) Downloads
Working Paper: Really uncertain business cycles (2013) Downloads
Working Paper: Really Uncertain Business Cycles (2012) Downloads
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