the impact of uncertainty shocks in emerging economies abstract a recent strand of research proposes that sudden jumps in uncertainty generate rapid drops and recoveries in real macroeconomic variables that drive the business cycle using an empirical model we find substantial heterogeneity in reactions to these shocks across countries in comparison to the u s and other developed countries emerging economies suffer much more severe falls in investment and private consumption following an exogenous uncertainty shock take significantly longer to recover and do not experience a subsequent overshoot in activity we provide evidence that the dynamics of investment and consumption are correlated with the depth of financial markets we control for the potential role of a credit channel and estimate that it can account for up to one half of the increased fall in investment generated by uncertainty shocks among emerging economies with less developed financial markets in this context monetary and fiscal policy actions that alleviate the impact of credit constraints facing firms may reduce the impact of uncertainty shocks in these economies

the american business cycle continuity and change in recent decades the american economy has experienced the worst peace time inflation in its history and the highest unemployment rate since the great depression these circumstances have prompted renewed interest in the concept of business cycles which joseph schumpeter suggested are like the beat of the heart of the essence of the organism that displays them in the american business cycle some of the most prominent macroeconomics in the united states focuses on the questions to what extent are business cycles propelled by external shocks how have post 1946 cycles differed from earlier cycles and what are the major factors that contribute to business cycles they extend their investigation in some areas as far back as 1875 to afford a deeper understanding of both economic history and the most recent economic fluctuations seven papers address specific aspects of economic activity consumption investment inventory change fiscal policy monetary behavior open economy and the labor market five papers focus on aggregate economic activity in a number of cases the papers present findings that challenge widely accepted models and assumptions in addition to its substantive findings the american business cycle includes an appendix containing both the first published history of the nber business cycle dating chronology and many previously unpublished historical data series

macroeconomic uncertainty through the lens of professional forecasters abstractwe analyze the evolution of macroeconomic uncertainty in the united states based on the forecast errors of consensus survey forecasts of various economic indicators comprehensive information contained in the survey forecasts enables us to capture a real time measure of uncertainty surrounding subjective forecasts in a simple framework we jointly model and estimate macroeconomic common and indicator specific uncertainties of four indicators using a factor stochastic volatility model our macroeconomic uncertainty estimates have three major spikes has three major spikes aligned with the 1973 1975 1980 and 2007 2009 recessions while other recessions were characterized by increases in indicator specific uncertainties we also show that the selection of data vintages affects the estimates and relative size of jumps in estimated uncertainty series finally our macroeconomic uncertainty has a persistent negative impact on real economic activity rather than producing wait and see dynamics

macroeconomic policy in a two party system as a repeated game this paper considers the interaction of two parties with different objectives concerning inflation and unemployment and rational and forward looking wage setters if discretionary policies are followed an economic cycle related to the political cycle results in equilibrium this cycle is significantly different from the traditional political business cycle reputational mechanisms due to the repeated interaction of the two parties and the public or commitments to a common policy rule can improve upon the discretionary outcome by reducing or eliminating the magnitude of the economic fluctuations

international risk cycles abstract recent work in international finance suggests that exchange rate puzzles can be accounted for if 1 aggregate uncertainty is time varying and 2 countries have heterogeneous exposures to a world aggregate shock we embed these features in a standard two country real business cycle framework and calibrate the model to equity risk premia in low and high interest rates countries unlike traditional real business cycle models our model generates volatile exchange rates a large currency forward premium excess comovement of asset prices relative to quantities and an imperfect correlation between relative consumption growth and exchange rates our model implies however that high interest rate countries have smoother quantities equity returns and interest rates than low interest rate countries contrary to the data

measuring uncertainty and its impact on the economy we propose a new framework for measuring uncertainty and its effects on the economy based on a large var model with errors whose stochastic volatility is driven by two common unobservable factors representing aggregate macroeconomic and financial uncertainty the uncertainty measures can also influence the levels of the variables so that contrary to most existing measures ours reflect changes in both the conditional mean and volatility of the variables and their impact on the economy can be assessed within the same framework moreover identification of the uncertainty shocks is simplified with respect to standard var based analysis in line with the favar approach and with heteroskedasticity based identification finally the model which is also applicable in other contexts is estimated with a new bayesian algorithm which is computationally efficient and allows for jointly modeling many variables while previous var models with stochastic volatility could only handle a handful of variables empirically we apply the method to estimate uncertainty and its effects using us data finding that there is indeed substantial commonality in uncertainty sizable effects of uncertainty on key macroeconomic and financial variables with responses in line with economic theory

modeling sudden stops the non trivial role of preference specifications abstract a puzzling ambiguity in current international economics literature is the link between sudden stops and output drops while some studies predict the link others find sudden stops lead to output increases this paper theoretically shows that the ambiguity results from alternative preference specifications

quantitative implications of a debt deflation theory of sudden stops and asset prices abstract this paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with key features of the sudden stop phenomenon foreign traders incur costs in trading assets with domestic agents and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings when this constraint does not bind standard productivity shocks cause typical real business cycle effects when it binds the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity with high leverage and a liquid market the shocks force fire sales of assets and fisher s debt deflation mechanism amplifies the responses of asset prices consumption and the current account precautionary saving makes these sudden stops infrequent in the long run

time varying structural vector autoregressions and monetary policy a corrigendum this note shows how to apply the procedure of kim et al 1998 to the estimation of var dsge factor and unobserved components models with stochastic volatility in particular it revisits the estimation algorithm of the time varying var model of primiceri 2005 the main difference of the new algorithm is the ordering of the various mcmc steps with each individual step remaining the same

common and country specific economic uncertainty abstract we use a factor model with stochastic volatility to decompose the time varying variance of macroeconomic and financial variables into contributions from country specific uncertainty and uncertainty common to all countries we find that the common component plays an important role in driving the time varying volatility of nominal and financial variables the cross country co movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade simulations from a two country dsge model featuring epstein zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross country correlation in volatility

the output employment and interest rate effects of government consumption abstract we study the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model we show theoretically that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change we also show that in principle there can be an analog to the keynesian multiplier in the neoclassical growth model finally in an empirically plausible version of the model we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one our results provide counterexamples to existing claims in the literature

economic policy uncertainty and unemployment in the united states a nonlinear approach we model us post wwii monthly data with a smooth transition var model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions we find the response of unemployment to be statistically and economically larger in recessions a state contingent forecast error variance decomposition analysis confirms that the contribution of epu shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

sudden stops and output drops in recent financial crises and in recent theoretical studies of them abrupt declines in capital inflows or sudden stops have been linked with large drops in output do sudden stops cause output drops no according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country s collateral constraint on foreign borrowing in this model in fact sudden stops lead to output increases not decreases an examination of the quantitative effects of a well known sudden stop in mexico in the mid 1990s confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone to generate an output drop during a financial crisis as other studies have done the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop this abstract was borrowed from another version of this item

externalities from contract length an increase in the length of a firm s labor contract contributes to rigidity in the aggregate price level this increases the variance of aggregate demand but decreases the variance of other firms real wages under certain conditions the net effect is to increase the variance of other firms employment this negative externality implies that the equilibrium contract length in a decentralized economy is greater than the social optimum in other words wages are too rigid copyright 1987 by american economic association

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

monetary policy and the timing of wage negotiations abstract in a model of long term labor contracts the simultaneous determination of the pattern of contract negotiation and the pattern of monetary policy intervention yields a nash equilibrium in which agents allow a discretionary role for policy the resulting pattern of negotiation depends on the stochastic nature of the system when all disturbances are aggregate in nature a synchronized pattern of negotiation is optimal regardless of the frequency of monetary policy intervention when both aggregate and relative disturbances affect the system a pattern of bunched negotiations can result with the authority intervening at dates away from the negotiation dates

optimal contract length in a reputational model of monetary policy we develop a reputational model of monetary policy with endogenous contract length in choosing contract length private sector agents trade off recontracting costs against the expected costs resulting from trading under contracts based on incorrect inflation expectations however due to an externality the private and socially optimal contract lengths differ when selecting individual contract length private agents do not consider the effect of contract length on the surprise inflation output trade off in a reputational model of monetary policy this results in an excessive equilibrium inflation rate the socially optimal outcome may be achieved by public policies that reduce recontracting costs

fluctuations in uncertainty this review article tries to answer four questions i what are the stylized facts about uncertainty over time ii why does uncertainty vary iii do fluctuations in uncertainty matter and iv did higher uncertainty worsen the great recession of 2007 2009 on the first question both macro and micro uncertainty appears to rise sharply in recessions on the second question the types of exogenous shocks like wars financial panics and oil price jumps that cause recessions appear to directly increase uncertainty and uncertainty also appears to endogenously rise further during recessions on the third question the evidence suggests uncertainty is damaging for short run investment and hiring but there is some evidence it may stimulate longer run innovation finally in terms of the great recession the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in gdp

innocent bystanders monetary policy and inequality abstract we study the effects of monetary policy shocks on and their historical contribution to consumption and income inequality in the united states since 1980 as measured by the consumer expenditure survey contractionary monetary policy systematically increases inequality in labor earnings total income consumption and total expenditures furthermore monetary policy shocks account for a non trivial component of the historical cyclical variation in income and consumption inequality using detailed micro level data on income and consumption we document some of the different channels via which monetary policy shocks affect inequality as well as how these channels depend on the nature of the change in monetary policy

a new approach to identifying the real effects of uncertainty shocks this article introduces the use of the sign restrictions methodology to identify uncertainty shocks we apply our methodology to a class of vector autoregression models with stochastic volatility t

assessing international commonality in macroeconomic uncertainty and its effects this paper uses a large vector autoregression var to measure international macroeconomic uncertainty and its effects on major economies using two datasets one with gdp growth rates for 19 industrialized countries and the other with a larger set of macroeconomic indicators for the u s euro area and u k using basic factor model diagnostics we first provide evidence of significant commonality in international macroeconomic volatility with one common factor accounting for strong comovement across economies and variables we then turn to measuring uncertainty and its effects with a large var in which the error volatilities evolve over time according to a factor structure the volatility of each variable in the system reflects time varying common global components and idiosyncratic components in this model global uncertainty is allowed to contemporaneously affect the macroeconomies of the included nations both the levels and volatilities of the included variables in this setup uncertainty and its effects are estimated in a single step within the same model our estimates yield new measures of international macroeconomic uncertainty and indicate that uncertainty shocks surprise increases lower gdp and many of its components adversely affect labor market conditions lower stock prices and in some economies lead to an easing of monetary policy

is price flexibility stabilizing a broader perspective recent prewar postwar comparisons of united states macroeconomic performance have produced a number of stylized facts about differences in the cyclical behavior of real activity and prices across the two periods 1 among them are two that have attracted special attention the stability of real aggregate activity measured by the variance of its cyclical component has been greater in the postwar period than in the prewar period and wages and prices have been less flexible in the postwar period than in the prewar period 2 in the standard keynesian paradigms wage and price rigidity are the cause of output and employment fluctuations taken together then the observations of greater stability and reduced wage and price flexibility have puzzled some economists and prompted a reconsideration of the relationship between the flexibility of the price system and macroeconomic stability a series of recent papers3 reassesses the relationship between price flexibility and

international spillovers of policy uncertainty using the baker et al 2013 index of policy uncertainty for six developed countries this paper estimates spillovers of policy uncertainty we find that spillovers account for slightly more than one fourth of the dynamics of policy uncertainty in these countries with this share rising to one half during the financial crisis the us and uk are responsible for a large fraction of the spillovers since the financial crisis while the remaining countries are all net receivers of policy uncertainty shocks during and after this period