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Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?†

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?† AbstractUncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response to output shocks, while uncertainty about financial markets is a likely source of output fluctuations. (JEL D81, E23, E32, E44, G14) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?†

Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?†

American Economic Journal: Macroeconomics , Volume 13 (4) – Oct 1, 2021

Abstract

AbstractUncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response to output shocks, while uncertainty about financial markets is a likely source of output fluctuations. (JEL D81, E23, E32, E44, G14)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20190171
Publisher site
See Article on Publisher Site

Abstract

AbstractUncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response to output shocks, while uncertainty about financial markets is a likely source of output fluctuations. (JEL D81, E23, E32, E44, G14)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2021

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