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Uncertainty, unemployment, and inflation

Author

Listed:
  • 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.

Suggested Citation

  • Sylvain Leduc & Zheng Liu, 2012. "Uncertainty, unemployment, and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep17.
  • Handle: RePEc:fip:fedfel:y:2012:i:sep17:n:2012-28
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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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    References listed on IDEAS

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    1. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
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    Cited by:

    1. John C. Williams, 2013. "The economy and monetary policy in uncertain times," Speech 115, Federal Reserve Bank of San Francisco.
    2. Brunetti, Celso & Büyükşahin, Bahattin & Harris, Jeffrey H., 2016. "Speculators, Prices, and Market Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(05), pages 1545-1574, October.
    3. Maritta Paloviita & Matti Viren, 2014. "Inflation and output growth uncertainty in individual survey expectations," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, pages 69-81.
    4. Mathy, Gabriel & Ziebarth, Nicolas L., 2017. "How Much Does Political Uncertainty Matter? The Case of Louisiana under Huey Long," The Journal of Economic History, Cambridge University Press, vol. 77(01), pages 90-126, March.
    5. repec:fip:fedfsp:y:2013:i:jan.14 is not listed on IDEAS

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