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Uncertainty, Financial Frictions and Nominal Rigidities: A Quantitative Investigation
Author:
Ambrogio Cesa-Bianchi null

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Emilio Fernández Corugedo
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 211
Language:
English
Publication Date:
29 Sep 2017
DOI:
https://doi.org/10.5089/9781484320723.001
ISBN:
9781484320723
ISSN:
1018-5941
Pages:
45
Keywords:
WP; standard deviation; business cycle; Uncertainty shocks; Credit frictions; Business cycles; uncertainty; TFP shock; TFP innovation; TFP process; depreciation rate; transmission mechanism; nominal interest rate; nomi-nal price rigidity; price stickiness; uncertainty shock; flex price economy; Taylor series; inflation rate; Total factor productivity; Consumption; Sticky prices; Self-employment; Credit
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro uncertainty) in a financial accelerator DSGE model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time series properties of macro and micro uncertainty are estimated using U.S. aggregate and firm-level data, respectively. While surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, these account for a small (non-trivial) share of output volatility.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund