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The Uncertainty Multiplier and Business Cycles

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  • Hikaru Saijo

Abstract

I study a business cycle model where agents learn about the state of the economy by accumulating capital. During recessions, agents invest less, and this generates noisier estimates of macroeconomic conditions and an increase in uncertainty. The endogenous increase in aggregate uncertainty further reduces economic activity, which in turn leads to more uncertainty, and so on. Thus, through changes in uncertainty, learning gives rise to a multiplier effect that amplies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.

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  • Hikaru Saijo, 2014. "The Uncertainty Multiplier and Business Cycles," Working Papers e067, Tokyo Center for Economic Research.
  • Handle: RePEc:tcr:wpaper:e67
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    References listed on IDEAS

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    Cited by:

    1. Hikaru Saijo & Cosmin Ilut, 2015. "Learning, Confidence, and Business Cycles," 2015 Meeting Papers 917, Society for Economic Dynamics.

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