{
  "title": "Uncertainty, Financial Frictions and Nominal Rigidities: A Quantitative Investigation",
  "publication": "IMF Working Papers, September 29, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/09/29/uncertainty-financial-frictions-and-nominal-rigidities-a-quantitative-investigation-45246",
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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 financ",
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    {
      "heading": "Summary",
      "content": "- Research question: Are uncertainty shocks a major source of business cycle fluctuations?\n- Study focus: Effects 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.\n- Main conclusion: Surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, but these account for a small (non-trivial) share of output volatility."
    },
    {
      "heading": "Methodology and Empirical Strategy",
      "content": "- Model: Financial accelerator DSGE model with sticky prices.\n- Shock types analyzed:\n  - Macro uncertainty: mean preserving shock to the variance of aggregate total factor productivity.\n  - Micro uncertainty: mean preserving shock to the dispersion of entrepreneurs' idiosyncratic productivity.\n- Empirical estimation: Time series properties of macro and micro uncertainty estimated using U.S. aggregate and firm-level data, respectively.\n- Investigation focus: Different mechanisms through which uncertainty shocks are propagated and amplified."
    },
    {
      "heading": "Key Findings and Mechanisms",
      "content": "- Comparative impact:\n  - Micro uncertainty shocks produce larger output effects than macro uncertainty shocks.\n  - Both types of uncertainty shocks contribute only a small (non-trivial) share of output volatility.\n- Mechanisms explored:\n  - Propagation via financial frictions in the financial accelerator framework.\n  - Amplification through nominal price stickiness and related transmission channels."
    },
    {
      "heading": "Subjects and Keywords (as listed)",
      "content": "- Subjects: Consumption, Credit, Labor, Money, National accounts, Prices, Production, Self-employment, Sticky prices, Total factor productivity\n- Keywords: business cycle, Business cycles, Consumption, Credit, Credit frictions, depreciation rate, flex price economy, inflation rate, nomi-nal price rigidity, nominal interest rate, price stickiness, Self-employment, standard deviation, Sticky prices, Taylor series, TFP innovation, TFP process, TFP shock, Total factor productivity, transmission mechanism, uncertainty, uncertainty shock, Uncertainty shocks, WP\n\n---\n\n Content in this bundle\n\n- wp17211\n  - wp17211 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp17211 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/09/29/uncertainty-financial-frictions-and-nominal-rigidities-a-quantitative-investigation-45246"
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    "Authors: Ambrogio Cesa-Bianchi, Emilio Fernández Corugedo",
    "Published: September 29, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484320723.001",
    "Research question: Are uncertainty shocks a major source of business cycle fluctuations?",
    "Study focus: Effects 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.",
    "Main conclusion: Surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, but these account for a small (non-trivial) share of output volatility.",
    "Model: Financial accelerator DSGE model with sticky prices.",
    "Shock types analyzed:",
    "Empirical estimation: Time series properties of macro and micro uncertainty estimated using U.S. aggregate and firm-level data, respectively.",
    "Investigation focus: Different mechanisms through which uncertainty shocks are propagated and amplified.",
    "Comparative impact:",
    "Mechanisms explored:",
    "Subjects: Consumption, Credit, Labor, Money, National accounts, Prices, Production, Self-employment, Sticky prices, Total factor productivity",
    "Keywords: business cycle, Business cycles, Consumption, Credit, Credit frictions, depreciation rate, flex price economy, inflation rate, nomi-nal price rigidity, nominal interest rate, price stickiness, Self-employment, standard deviation, Sticky prices, Taylor series, TFP innovation, TFP process, TFP shock, Total factor productivity, transmission mechanism, uncertainty, uncertainty shock, Uncertainty shocks, WP",
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