Working Paper: NBER ID: w28024
Authors: Boyan Jovanovic; Sai Ma
Abstract: This paper documents several facts on the real effects of economic uncertainty. First, higher uncertainty is associated with a more dispersed distribution of output growth. Second, the relation is highly asymmetric: A rise in uncertainty is associated with a sharp decline in the lower tail of the growth distribution whereas it has a much smaller and insignificant impact on its upper tail. Third, the negative response of growth to uncertainty shocks is larger when the equity market is more volatile. We build a model in which growth and uncertainty are both endogenous: rapid adoption of new technology raises economic uncertainty and may cause measured productivity to decline. The equilibrium growth distribution is negatively skewed and higher uncertainty leads to a thicker left tail and to more labor reallocation among jobs and among
Keywords: uncertainty; growth; economic fluctuations; quantile regression
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher economic uncertainty (D89) | More dispersed and negatively skewed growth distribution (D39) |
| One-standard-deviation increase in uncertainty (D89) | Increase in interquartile range of one-month-ahead annualized growth distribution by 2% (D39) |
| One-standard-deviation increase in uncertainty (D89) | Decrease in lower 5th percentile of growth distribution by 5% (F62) |
| Higher uncertainty (D89) | Larger decrease in lower tail of growth distribution (D39) |
| Higher asset market volatility (VIX) (G19) | Amplifies negative impact of uncertainty on growth (D89) |
| One-standard-deviation increase in VIX (C58) | Increase in marginal effect of uncertainty on lower 5th percentile of expected growth distribution by 10% (F62) |