Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?

Sydney C. Ludvigson, Sai Ma, Serena Ng

NBER Working Paper No. 21803
Issued in December 2015, Revised in December 2017
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

Uncertainty about the future rises in recessions. But is uncertainty a source of business cycle fluctuations or an endogenous response to them, and does the type of uncertainty matter? To address these questions we pursue a novel identification strategy that restricts the behavior of the structural shocks. We find that sharply higher uncertainty about real economic activity in recessions is often an endogenous response to other shocks, while uncertainty about financial markets is a likely source of the fluctuations. These findings point to the need for a better understanding of how uncertainties in financial markets are transmitted to the macroeconomy.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w21803

Users who downloaded this paper also downloaded* these:
Mian, Sufi, and Verner w21581 Household Debt and Business Cycles Worldwide
Gilchrist, Sim, and Zakrajšek w20038 Uncertainty, Financial Frictions, and Investment Dynamics
Belongia and Ireland w21796 Money and Output: Friedman and Schwartz Revisited
Alesina and Passalacqua w21821 The Political Economy of Government Debt
Cúrdia and Woodford w21820 Credit Frictions and Optimal Monetary Policy
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us