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The Origins and Effects of Macroeconomic Uncertainty

Francesco Bianchi, Howard Kung and Mikhail Tirskikh
Additional contact information
Francesco Bianchi: Duke University
Howard Kung: London Business School
Mikhail Tirskikh: London Business School

No 245, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession.

New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:245

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