Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?
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Sydney Ludvigson
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Sai Ma
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Serena Ng
- American Economic Journal: Macroeconomics (Forthcoming)
Abstract
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.
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