Really Uncertain Business Cycles
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.
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Copy CitationNicholas Bloom, Max Floetotto, Nir Jaimovich, Itay Saporta-Eksten, and Stephen J. Terry, "Really Uncertain Business Cycles," NBER Working Paper 18245 (2012), https://doi.org/10.3386/w18245.Download Citation
Published Versions
Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May. citation courtesy of 
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