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Estimating the effects of uncertainty over the business cycle

Author

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  • Bonciani, Dario
Abstract
In this paper I provide empirical evidence that uncertainty shocks have strong asymmetric effects on economic activity depending on the phase of the business cycle. In particular, the impulse responses estimated with the local projection method on a smooth-transition model show that in recessions uncertainty shocks strongly dampen industrial production, increase unemployment and reduce prices. In an expansion the effects are reversed, and uncertainty shocks appear to have positive macroeconomic effects. One possible explanation is that during expansions uncertainty fosters investments and economic activity through the "growth options" channel, while in recessions it reduces investments via the "wait-and-see" channel.

Suggested Citation

  • Bonciani, Dario, 2015. "Estimating the effects of uncertainty over the business cycle," MPRA Paper 65921, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65921
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    References listed on IDEAS

    as
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    Cited by:

    1. Bonciani, Dario & Roye, Björn van, 2016. "Uncertainty shocks, banking frictions and economic activity," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 200-219.

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    More about this item

    Keywords

    uncertainty shocks; Smooth-Transition; local projections; nonlinearities;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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