NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Origins and Effects of Macroeconomic Uncertainty

Francesco Bianchi, Howard Kung, Mikhail Tirskikh

NBER Working Paper No. 25386
Issued in December 2018
NBER Program(s):Asset Pricing Program, Economic Fluctuations and Growth Program, The Monetary Economics Program

We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession.

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Document Object Identifier (DOI): 10.3386/w25386

 
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