Working Paper: NBER ID: w20319
Authors: David Backus; Axelle Ferriere; Stanley Zin
Abstract: We inject aggregate uncertainty - risk and ambiguity - into an otherwise standard business cycle model and describe its consequences. We find that increases in uncertainty generally reduce consumption, but they do not account, in this model, for either the magnitude or the persistence of the most recent recession. We speculate about extensions that might do better along one or both dimensions.
Keywords: business cycles; uncertainty; risk; ambiguity
JEL Codes: D81; E32; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty (D89) | Consumption (E21) |
| Uncertainty (D89) | Investment (G31) |
| Uncertainty (D89) | Output (Y10) |
| Consumption (E21) | Investment (G31) |
| Uncertainty (D89) | Consumption and Investment (E20) |
| Uncertainty (D89) | Economic Fluctuations (E32) |