The Origins and Effects of Macroeconomic Uncertainty

58 Pages Posted: 23 Jan 2019

See all articles by Francesco Bianchi

Francesco Bianchi

Duke University

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Mikhail Tirskikh

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 2019


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.

Keywords: Business Cycles, Term Structure of Interest Rates, time-varying risk premia, Uncertainty shocks

JEL Classification: C11, C32, E32, G12

Suggested Citation

Bianchi, Francesco and Kung, Howard and Tirskikh, Mikhail, The Origins and Effects of Macroeconomic Uncertainty (January 2019). CEPR Discussion Paper No. DP13450. Available at SSRN:

Francesco Bianchi (Contact Author)

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Howard Kung

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Mikhail Tirskikh

London Business School

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

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