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Uncertainty Shocks and Business Cycle Research

Jesús Fernández-Villaverde, Pablo A. Guerrón-Quintana

NBER Working Paper No. 26768
Issued in February 2020
NBER Program(s):Economic Fluctuations and Growth

We review the literature on uncertainty shocks and business cycle research. First, we motivate the study of uncertainty shocks by documenting the presence of time-variation in the volatility of macroeconomic time series. Second, we enumerate the mechanisms that researchers have postulated to link uncertainty shocks and business cycles. Third, we outline how we can specify uncertainty shocks. Fourth, we postulate a real business cycle model augmented with financial frictions and uncertainty shocks. Fifth, we use the model to illustrate our previous discussions and to show how uncertainty shocks can be expansionary.

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Document Object Identifier (DOI): 10.3386/w26768

 
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