Uncertainty, unemployment, and inflation
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.
Volume (Year): (2012)
Issue (Month): sep17 ()
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- Sylvain Leduc & Zheng Liu, 2012.
"Uncertainty shocks are aggregate demand shocks,"
Working Paper Series
2012-10, Federal Reserve Bank of San Francisco.
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