IDEAS home Printed from
   My bibliography  Save this paper

Uncertainty and the Business Cycle


  • Matteo Cacciatore

    (HEC Montreal)


We show that fluctuations in aggregate uncertainty generate state-dependent dynamics in a general equilibrium model with labor-market search frictions and occasionally binding constraints on wage bargaining. The existence of a profit risk-premium for firms implies that an increase in uncertainty has a large impact during recessions but modest effects on average. The profit risk-premium does not depend on nominal rigidities or markup variations. Additionally, we show that output forecast error variance is countercyclical, even if uncertainty shocks are equally likely in expansions and recessions. Thus, our framework can explain the correlation between empirical measures of economic uncertainty and recessions. We obtain our results using a third-order Taylor expansion of the equilibrium equations and approximating a non-convexity in the wage decision rule with a novel implementation of penalty function methods.

Suggested Citation

  • Matteo Cacciatore, 2015. "Uncertainty and the Business Cycle," 2015 Meeting Papers 1440, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:1440

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.


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

    Cited by:

    1. Caggiano, Giovanni & Castelnuovo, Efrem & Figueres, Juan Manuel, 2017. "Economic policy uncertainty and unemployment in the United States: A nonlinear approach," Economics Letters, Elsevier, vol. 151(C), pages 31-34.

    More about this item


    Access and download statistics


    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:red:sed015:1440. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.