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Uncertainty, Financial Frictions, and Nominal Rigidities: A Quantitative Investigation
Author(s) -
CESABIANCHI AMBROGIO,
FERNANDEZCORUGEDO EMILIO
Publication year - 2018
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12505
Subject(s) - economics , business cycle , econometrics , macro , volatility (finance) , shock (circulatory) , variance (accounting) , aggregate (composite) , productivity , total factor productivity , surprise , monetary economics , macroeconomics , computer science , medicine , psychology , social psychology , materials science , accounting , composite material , programming language
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 dynamic stochastic general equilibrium 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 total output than macro‐uncertainty, these can only account for a small (but nontrivial) share of output volatility.