The impact of uncertainty shocks
Subtitle: firm level estimation and a 9/11 simulation
By: Nick Bloom
Contributors: London School of Economics and Political Science. Centre for Economic Performance
Series: CEP discussion paper -- no. 718; Discussion paper (London School of Economics and Political Science. Centre for Economic Performance : Online) -- no. 718.
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Published: 2006
Place of publication: London
Language: eng
Format: [electronic resource] :
Description: Uncertainty appears to vary strongly over time, temporarily rising by up to 200% around major shocks like the Cuban Missile crisis, the assassination of JFK and 9/11. This paper offers the first structural framework to analyze uncertainty shocks. I build a model with a time varying second moment, which is numerically solved and estimated using firm level data. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in employment, investment and productivity, and a moderate loss in GDP. This temporary impact of a second moment shock is different from the typically persistent impact of a first moment shock, highlighting the importance for policymakers of identifying their relative magnitudes in major shocks. The simulation of an uncertainty shock is then compared to actual 9/11 data, displaying a surprisingly good match.
Notes: Title from PDF file (viewed on Mar. 29, 2006).

"March 2006."

Includes bibliographical references.

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Mode of access: World Wide Web.