Really uncertain business cycles

Bloom, Nicholas, Floetotto, Max, Jaimovich, Nir, Saporta-Eksten, Itay and Terry, Stephen (2013) Really uncertain business cycles. CEP Discussion Papers (CEPDP1195). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information:	© 2013 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HF Commerce
JEL classification:	E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
Date Deposited:	07 Aug 2013 15:40
Last Modified:	15 Sep 2023 23:29
URI:	http://eprints.lse.ac.uk/id/eprint/51526

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