Uncertainty, Financial Frictions and Nominal Rigidities: A Quantitative Investigation
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Summary:
Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro uncertainty) in a financial accelerator DSGE model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time series properties of macro and micro uncertainty are estimated using U.S. aggregate and firm-level data, respectively. While surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, these account for a small (non-trivial) share of output volatility.
Series:
Working Paper No. 2017/211
Subject:
Consumption Credit Labor Money National accounts Prices Production Self-employment Sticky prices Total factor productivity
English
Publication Date:
September 29, 2017
ISBN/ISSN:
9781484320723/1018-5941
Stock No:
WPIEA2017211
Pages:
45
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