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The origins and effects of macroeconomic uncertainty

Journal

Quantitative Economics

Subject

Finance

Publishing details

Quantitative Economics 2023 Vol 14:3 p 855-896

Authors / Editors

Bianchi F;Kung H;Tirskikh M

Biographies

Howard Kung

Publication Year

2023

Abstract

We estimate a production-based general equilibrium model featuring demand- and supply-side uncertainty and an endogenous term premium. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand- 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 endogenous risk wedges account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple after the Great Recession.

Available on ECCH

No


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