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Uncertainty shocks: it's a matter of habit

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  • Bonciani, Dario

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.

Suggested Citation

  • Bonciani, Dario, 2014. "Uncertainty shocks: it's a matter of habit," MPRA Paper 59370, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:59370
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    More about this item

    Keywords

    Uncertainty Shocks; STVAR; External habits; Precautionary savings.;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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