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Uncertainty, unemployment, and inflation

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  • Sylvain Leduc
  • Zheng Liu

Abstract

Heightened uncertainty acts like a decline in aggregate demand because it depresses economic activity and holds down inflation. Policymakers typically try to counter uncertainty's economic effects by easing the stance of monetary policy. But, in the recent recession and recovery, nominal interest rates have been near zero and couldn't be lowered further. Consequently, uncertainty has reduced economic activity more than in previous recessions. Higher uncertainty is estimated to have lifted the U.S. unemployment rate by at least one percentage point since early 2008.

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File URL: http://www.frbsf.org/publications/economics/letter/2012/el2012-28.html
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File URL: http://www.frbsf.org/publications/economics/letter/2012/el2012-28.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

Volume (Year): (2012)
Issue (Month): sep17 ()
Pages:

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Handle: RePEc:fip:fedfel:y:2012:i:sep17:n:2012-28

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Keywords: Uncertainty ; Unemployment ; Inflation (Finance);

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  1. Sylvain Leduc & Zheng Liu, 2012. "Uncertainty shocks are aggregate demand shocks," Working Paper Series, Federal Reserve Bank of San Francisco 2012-10, Federal Reserve Bank of San Francisco.
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Cited by:
  1. Gabriel P. Mathy & Nicholas L. Ziebarth, 2014. "How Much Does Political Uncertainty Matter? The Case of Louisiana Under Huey Long," Working Papers, American University, Department of Economics 2014-06, American University, Department of Economics.
  2. John C. Williams, 2013. "The economy and monetary policy in uncertain times," Speech, Federal Reserve Bank of San Francisco 115, Federal Reserve Bank of San Francisco.
  3. Maritta Paloviita & Matti Viren, 2014. "Inflation and output growth uncertainty in individual survey expectations," Empirica, Springer, Springer, vol. 41(1), pages 69-81, February.
  4. repec:fip:fedfsp:y:2013:i:jan.14 is not listed on IDEAS

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