Countercyclical Fluctuations in Uncertainty are Endogenous

Joshua Bernstein (jmbernst@iu.edu), Michael Plante, Alexander Richter and Nathaniel Throckmorton

No 2109, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper uses a battery of calibrated and estimated structural models to determine the causal drivers of the negative correlation between output and aggregate uncertainty. We find the transmission of uncertainty shocks to output is weak, while aggregate uncertainty endogenously responds to first moment shocks in the presence of labor market search frictions. This indicates that countercyclical movements in aggregate uncertainty are endogenous responses to changes in output, rather than exogenous impulses. A vector autoregression on simulated data shows recursive identification techniques do not robustly identify structural uncertainty shocks.

Keywords: Uncertainty Shocks; Endogenous Uncertainty; Variance Decomposition; Nonlinear (search for similar items in EconPapers)
JEL-codes: C13 D81 E32 E37 J64 (search for similar items in EconPapers)
Pages: 35
Date: 2021-07-02
New Economics Papers: this item is included in nep-dge, nep-lab, nep-mac and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:92899

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DOI: 10.24149/wp2109

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