Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?Sydney C. Ludvigson, Sai Ma, Serena Ng
NBER Working Paper No. 21803 Uncertainty 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. But the findings also suggest that macroeconomic uncertainty plays an important role in recessions, by substantially amplifying downturns caused by other shocks.
Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w21803 Users who downloaded this paper also downloaded* these:
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