Uncertainty shocks: it's a matter of habit

Bonciani, Dario (2014): Uncertainty shocks: it's a matter of habit.

Abstract

This paper provides empirical and theoretical evidence that uncertainty shocks have strong asymmetric effects on economic activity. Specifically, in the empirical analysis I find that uncertainty shocks dampen investment and consumption twice as much during recessions than in "normal" times. In the theoretical analysis I employ a sticky-prices general equilibrium model featuring external habit formation to show that the asymmetric effects of uncertainty shocks can be explained by countercyclical fluctuations in precautionary savings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Uncertainty Shocks, STVAR, External habits, Precautionary savings.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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