IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v16y2024i4p143-71.html

A Simple Explanation of Countercyclical Uncertainty

Author

Listed:
  • Joshua Bernstein
  • Michael Plante
  • Alexander W. Richter
  • Nathaniel A. Throckmorton

Abstract

This paper documents that labor search and matching frictions generate countercyclical uncertainty because the inherent nonlinearity in the flow of new matches makes employment uncertainty increasing in the number of people searching for work. Quantitatively, this mechanism is strong enough to explain uncertainty and real activity dynamics, including their correlation. Through this lens, uncertainty fluctuations are endogenous responses to changes in real activity that neither affect the severity of business cycles nor warrant policy intervention, in contrast with leading theories of the interaction between uncertainty and real activity dynamics.

Suggested Citation

  • Joshua Bernstein & Michael Plante & Alexander W. Richter & Nathaniel A. Throckmorton, 2024. "A Simple Explanation of Countercyclical Uncertainty," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(4), pages 143-171, October.
    • Handle: RePEc:aea:aejmac:v:16:y:2024:i:4:p:143-71
    DOI: 10.1257/mac.20220134
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20220134
    Download Restriction: no
    File URL: https://doi.org/10.3886/E184121V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20220134.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20220134.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/mac.20220134?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    2. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    3. Sydney C. Ludvigson & Sai Ma & Serena Ng, 2021. "Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 369-410, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anastasiia Antonova & Mykhailo Matvieiev & Céline Poilly, 2024. "Supply Shocks in the Fog: The Role of Endogenous Uncertainty," AMSE Working Papers 2427, Aix-Marseille School of Economics, France.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joshua Bernstein & Michael D. Plante & Alexander W. Richter & Nathaniel A. Throckmorton, 2021. "Countercyclical Fluctuations in Uncertainty are Endogenous," Working Papers 2109, Federal Reserve Bank of Dallas.
    2. Tyler Atkinson & Michael Plante & Alexander Richter & Nathaniel Throckmorton, 2022. "Complementarity and Macroeconomic Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 225-243, April.
    3. Comunale, Mariarosaria & Nguyen, Anh Dinh Minh, 2025. "A comprehensive MacroEconomic uncertainty measure for the euro area and its implications to COVID-19," Journal of International Money and Finance, Elsevier, vol. 157(C).
    4. Falconio, Andrea & Manganelli, Simone, 2025. "Financial conditions, business cycle fluctuations and growth-at-risk," Journal of Economic Dynamics and Control, Elsevier, vol. 176(C).
    5. Bandi, Federico M. & Bretscher, Lorenzo & Tamoni, Andrea, 2023. "Return predictability with endogenous growth," Journal of Financial Economics, Elsevier, vol. 150(3).
    6. Himounet, Nicolas, 2022. "Searching the nature of uncertainty: Macroeconomic and financial risks VS geopolitical and pandemic risks," International Economics, Elsevier, vol. 170(C), pages 1-31.
    7. Carlos Cañizares Martínez & Arne Gieseck, 2025. "The effects of macro uncertainty shocks in the euro area: a FAVAR approach," Empirical Economics, Springer, vol. 68(6), pages 2829-2872, June.
    8. Josué Diwambuena & Jean-Paul K. Tsasa, 2021. "The Real Effects of Uncertainty Shocks: New Evidence from Linear and Nonlinear SVAR Models," BEMPS - Bozen Economics & Management Paper Series BEMPS87, Faculty of Economics and Management at the Free University of Bozen.
    9. Soojin Jo & Justin J. Lee, 2019. "Uncertainty and Labor Market Fluctuations," Working Papers 1904, Federal Reserve Bank of Dallas.
    10. Mario Forni & Luca Gambetti & Nicolò Maffei-Faccioli & Luca Sala, 2023. "The impact of financial shocks on the forecast distribution of output and inflation," Working Paper 2023/3, Norges Bank.
    11. Nilotpal Sarma & Priyanshu Tiwari & Prabina Rajib, 2025. "From Fields to Futures: Connectedness Among Edible Oil and Oilseeds- Where Soybean Leads, Others Follow," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 32(2), pages 447-463, June.
    12. Metiu, Norbert & Prieto, Esteban, 2025. "Time-varying stock return correlation, news shocks, and business cycles," European Economic Review, Elsevier, vol. 172(C).
    13. Bok, Brandyn & Mertens, Thomas M. & Williams, John C., 2025. "Macroeconomic drivers and the pricing of uncertainty, inflation, and bonds," Journal of Financial Economics, Elsevier, vol. 172(C).
    14. Mathias Krogh & Giovanni Pellegrino, "undated". "Real Activity and Uncertainty Shocks: The Long and the Short of It," "Marco Fanno" Working Papers 0310, Dipartimento di Scienze Economiche "Marco Fanno".
    15. Eksi, Ozan & Onur Tas, Bedri Kamil, 2022. "Time-varying effect of uncertainty shocks on unemployment," Economic Modelling, Elsevier, vol. 110(C).
    16. Grebe, Moritz & Kandemir, Sinem & Tillmann, Peter, 2023. "Uncertainty about the war in Ukraine: Measurement and effects on the German business cycle," IMFS Working Paper Series 184, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    17. Dew-Becker, Ian & Giglio, Stefano & Kelly, Bryan, 2021. "Hedging macroeconomic and financial uncertainty and volatility," Journal of Financial Economics, Elsevier, vol. 142(1), pages 23-45.
    18. Smimou, K. & Bosch, D. & Filbeck, G., 2024. "Commodities and Policy Uncertainty Channel(s)," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 351-379.
    19. Francisco Serranito & Julien Vauday & Nicolas Himounet, 2022. "A Positive Effect of Uncertainty Shocks on the Economy: Is the Chase Over ?," Working Papers hal-04159792, HAL.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:16:y:2024:i:4:p:143-71. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.