The Uncertainty Multiplier and Business Cycles

Hikaru Saijo

No e067, Working Papers from Tokyo Center for Economic Research

Abstract: I study a business cycle model where agents learn about the state of the economy by accumulating capital. During recessions, agents invest less, and this generates noisier estimates of macroeconomic conditions and an increase in uncertainty. The endogenous increase in aggregate uncertainty further reduces economic activity, which in turn leads to more uncertainty, and so on. Thus, through changes in uncertainty, learning gives rise to a multiplier effect that amplies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.

Pages: 43 pages
Date: 2014-01
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Citations: View citations in EconPapers (2)

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