Uncertainty Shocks and Business Cycle Research

53 Pages Posted: 24 Feb 2020

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Pablo Guerrón-Quintana

Boston College

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Date Written: February 2020

Abstract

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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Suggested Citation

Fernández-Villaverde, Jesús and Guerrón-Quintana, Pablo, Uncertainty Shocks and Business Cycle Research (February 2020). NBER Working Paper No. w26768, Available at SSRN: https://ssrn.com/abstract=3543291

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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Pablo Guerrón-Quintana

Boston College ( email )

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