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Time-varying ambiguity shocks and business cycles

Author

Listed:
  • Takao Asano

    (Okayama University)

  • Xiaojing Cai

    (Okayama University)

  • Ryuta Sakemoto

    (Okayama University)

Abstract

This study investigates how ambiguity has driven output and inflation in the U.S. over the past 70 years. We adopt the recently developed techniques that disentangle ambiguity from risk and assess the responses of output and inflation to ambiguity shocks. We observe that an increase in ambiguity led to an increase in output during high inflation periods, indicating the ambiguity lover behavior. We also uncover that ambiguity and risk estimated by realized volatility have the opposite impacts on business cycles, which is consistent with the prevailing asset pricing literature.

Suggested Citation

  • Takao Asano & Xiaojing Cai & Ryuta Sakemoto, 2023. "Time-varying ambiguity shocks and business cycles," KIER Working Papers 1094, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:1094
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    References listed on IDEAS

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    More about this item

    Keywords

    Ambiguity; Risk premiums; Uncertainty; TVP-VAR;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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