The Uncertainty Multiplier and Business Cycles

I study a business cycle model where agents learn about the state of the economy by accumulating captal. During recessions, agents invest less, abd this generates noisier estimates of macroeconomic conditions and an increase in uncertainty. The endogenous increase in aggregate uncertainty further reduces economic activity, which in turn leads to more uncertainty, and so on. Thus, through changes in uncertainty, learning gives rise to a multiplier effect that amplifies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.