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Fluctuations in Uncertainty

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  • Nicholas Bloom

Abstract

This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Occasional Papers with number 038.

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Date of creation: Dec 2013
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Handle: RePEc:cep:cepops:038

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEPOP

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Keywords: Uncertainty; risk; volatility; investment;

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  1. Tories for whom?
    by chris dillow in Stumbling and Mumbling on 2014-07-01 13:18:29
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Cited by:
  1. Scott R. Baker & Nicholas Bloom & Brandice Canes-Wrone & Steven J. Davis & Jonathan A. Rodden, 2014. "Why Has U.S. Policy Uncertainty Risen Since 1960?," NBER Working Papers 19826, National Bureau of Economic Research, Inc.

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