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Title: A Simple Explanation of Countercyclical Uncertainty

Citation Type: Miscellaneous

Publication Year: 2022

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Abstract: This paper documents that labor search and matching frictions endogenously generate countercyclical uncertainty. Quantitatively, this mechanism is strong enough to jointly explain uncertainty and real activity dynamics. Through this lens, uncertainty fluctuations are endogenous responses to the fluctuations in real activity, and they neither affect the severity of business cycles nor warrant policy intervention, in contrast with leading theories of the interaction between uncertainty and output. A structural VAR can recover the true shocks in our model but only if uncertainty is ordered last, the reverse of what is usually done in the literature.

Url: http://alexrichterecon.com/AWR_files/BPRT-uncertainty.pdf

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Authors: Bernstein, Joshua; Plante, Michael; Richter, Alexander W.; Throckmorton, Nathaniel A.

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Topics: Other

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