Working Paper: CEPR ID: DP12083
Authors: Benjamin Born; Sebastian Breuer; Steffen Elstner
Abstract: Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the U.S.? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10 percent of the drop in GDP at the height of the recession and up to 0.7 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.
Keywords: Uncertainty; Shocks; Great Recession
JEL Codes: E32; C32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic uncertainty (D89) | GDP (E20) |
| financial uncertainty (G33) | GDP (E20) |
| financial uncertainty shocks (E44) | unemployment rate (J64) |
| increased uncertainty (D89) | GDP (E20) |
| increased uncertainty (D89) | unemployment (J64) |