IDEAS home Printed from https://ideas.repec.org/a/fip/fedfel/y2012isep17n2012-28.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://www.frbsf.org/publications/economics/letter/2012/el2012-28.pdf
    Download Restriction: no
    File URL: http://www.frbsf.org/publications/economics/letter/2012/el2012-28.html
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Leduc, Sylvain & Sill, Keith & Stark, Tom, 2007. "Self-fulfilling expectations and the inflation of the 1970s: Evidence from the Livingston Survey," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 433-459, March.
    2. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    3. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    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. Vivek Ghosal & Yang Ye, 2015. "Uncertainty and the employment dynamics of small and large businesses," Small Business Economics, Springer, vol. 44(3), pages 529-558, March.
    2. PINSHI, Christian P. & MALATA, Alain, 2020. "Canal d’incertitude de la COVID-19 : Quelles stratégies et tactiques pour la politique monétaire ? [COVID-19 Uncertainty Channel: What Strategies and Tactics for Monetary Policy?]," MPRA Paper 109313, University Library of Munich, Germany.
    3. Zheng Liu & Andrew Tai, 2016. "Slow Credit Recovery and Excess Returns on Capital," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    4. John C. Williams, 2013. "The economy and monetary policy in uncertain times," Speech 115, Federal Reserve Bank of San Francisco.
    5. Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn & Michailidis, George, 2019. "Interconnectedness in the interbank market," Journal of Financial Economics, Elsevier, vol. 133(2), pages 520-538.
    6. Brunetti, Celso & Büyükşahin, Bahattin & Harris, Jeffrey H., 2016. "Speculators, Prices, and Market Volatility," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(5), pages 1545-1574, October.
    7. Manuel Flores & Melchor Fernández & Yolanda Pena-Boquete, 2020. "The impact of health on wages: evidence from Europe before and during the Great Recession," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 319-346.
    8. Maritta Paloviita & Matti Viren, 2014. "Inflation and output growth uncertainty in individual survey expectations," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(1), pages 69-81, February.
    9. 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(1), pages 90-126, March.
    10. Saltzman, Bennett & Yung, Julieta, 2018. "A machine learning approach to identifying different types of uncertainty," Economics Letters, Elsevier, vol. 171(C), pages 58-62.
    11. Houari, Oussama, 2022. "Uncertainty shocks and business cycles in the US: New insights from the last three decades," Economic Modelling, Elsevier, vol. 109(C).
    12. repec:fip:fedfsp:y:2013:i:jan.14 is not listed on IDEAS
    13. Anasuya Haldar & Narayan Sethi, 2022. "The Economic Effects Of Covid-19 Mitigation Policies On Unemployment And Economic Policy Uncertainty," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 61-84, March.
    14. Suleyman Kasal & Sebnem Tosunoglu, 2022. "Effects of Fiscal Policy Uncertainty on Turkish Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(6), pages 538-566.
    15. Tajaddini, Reza & Gholipour, Hassan F., 2021. "Economic uncertainty and business formation: A cross-country analysis," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    16. Alain MALATA & Christian PINSHI, 2020. "Fading The Effects Of Coronavirus With Monetary Policy," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 11(2), pages 105-110.
    17. Stefan Schiman & Atanas Pekanov, 2020. "Uncertainty in the Euro Area During the First Wave of the COVID-19 Pandemic," WIFO Studies, WIFO, number 66708, March.

    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. Arce-Alfaro, Gabriel & Blagov, Boris, 2021. "Monetary policy uncertainty and inflation expectations," Ruhr Economic Papers 899, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Libo Yin & Liyan Han, 2014. "Spillovers of macroeconomic uncertainty among major economies," Applied Economics Letters, Taylor & Francis Journals, vol. 21(13), pages 938-944, September.
    3. Idriss Fontaine, 2021. "Uncertainty and Labour Force Participation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 437-471, April.
    4. Ahmed, M. Iqbal & Cassou, Steven P., 2021. "Asymmetries in the effects of unemployment expectation shocks as monetary policy shifts with economic conditions," Economic Modelling, Elsevier, vol. 100(C).
    5. Miescu, Mirela & Rossi, Raffaele, 2021. "COVID-19-induced shocks and uncertainty," European Economic Review, Elsevier, vol. 139(C).
    6. Alessandri, Piergiorgio & Mumtaz, Haroon, 2019. "Financial regimes and uncertainty shocks," Journal of Monetary Economics, Elsevier, vol. 101(C), pages 31-46.
    7. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    8. Wensheng Kang & Ronald A. Ratti & Joaquin Vespignani, 2020. "Impact of global uncertainty on the global economy and large developed and developing economies," Applied Economics, Taylor & Francis Journals, vol. 52(22), pages 2392-2407, May.
    9. Bandi, Federico M. & Bretscher, Lorenzo & Tamoni, Andrea, 2023. "Return predictability with endogenous growth," Journal of Financial Economics, Elsevier, vol. 150(3).
    10. Joëts, Marc & Mignon, Valérie & Razafindrabe, Tovonony, 2017. "Does the volatility of commodity prices reflect macroeconomic uncertainty?," Energy Economics, Elsevier, vol. 68(C), pages 313-326.
    11. Meinen, Philipp & Roehe, Oke, 2018. "To sign or not to sign? On the response of prices to financial and uncertainty shocks," Economics Letters, Elsevier, vol. 171(C), pages 189-192.
    12. Arigoni, Filippo & Lenarčič, Črt, 2020. "The impact of trade policy uncertainty shocks on the Euro Area," MPRA Paper 100832, University Library of Munich, Germany.
    13. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87.
    14. Danilo Cascaldi‐Garcia & Ana Beatriz Galvao, 2021. "News and Uncertainty Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(4), pages 779-811, June.
    15. 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.
    16. Laurent Ferrara & Pierre Guérin, 2018. "What are the macroeconomic effects of high‐frequency uncertainty shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(5), pages 662-679, August.
    17. Troy Davig & Andrew Foerster, 2019. "Uncertainty and Fiscal Cliffs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 1857-1887, October.
    18. 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.
    19. Scotti, Chiara, 2016. "Surprise and uncertainty indexes: Real-time aggregation of real-activity macro-surprises," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 1-19.
    20. Isoré, Marlène & Szczerbowicz, Urszula, 2017. "Disaster risk and preference shifts in a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 97-125.

    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:fip:fedfel:y:2012:i:sep17:n:2012-28. 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: Federal Reserve Bank of San Francisco Research Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbsfus.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.