European Parliament Library

Uncertainty, Financial Frictions and Nominal Rigidities: A Quantitative Investigation, Ambrogio Cesa-Bianchi, Emilio Fernández Corugedo

Abstract
Are uncertainty shocks a major source of business cycle fluctuations? This paper studies the effect of a mean preserving shock to the variance of aggregate total factor productivity (macro uncertainty) and to the dispersion of entrepreneurs' idiosyncratic productivity (micro uncertainty) in a financial accelerator DSGE model with sticky prices. It explores the different mechanisms through which uncertainty shocks are propagated and amplified. The time series properties of macro and micro uncertainty are estimated using U.S. aggregate and firm-level data, respectively. While surprise increases in micro uncertainty have a larger impact on output than macro uncertainty, these account for a small (non-trivial) share of output volatility
Table Of Contents
Cover -- Contents -- I. Introduction -- II. Model -- A. Households -- B. Unfinished Capital Producers -- C. Entrepreneurs -- 1. The Optimal Loan Contract -- 2. Evolution of Net Worth -- D. Final Good Sector -- E. Intermediate Firms -- F. Monetary Policy -- G. Market Clearing -- H. Sources of Uncertainty in the Model -- III. Calibration and Solution Methodology -- A. Parameters of the model -- B. Exogenous Processes -- C. Solution Method -- IV. Impulse Response Analysis -- A. Baseline Results -- B. Inspecting the Transmission Mechanism of Uncertainty Shocks -- 1. Price stickiness -- 2. Credit Frictions -- 3. Other Ingredients -- V. Unconditional Business Cycle Properties -- VI. Conclusions -- References -- Appendices -- A. Appendix -- A.1. Equilibrium -- A.2. Households' Preferences -- Tables -- 1. PARAMETERS VALUES OF THE MODEL -- 2. PARAMETER VALUES OF THE EXOGENOUS PROCESSES IN THE MODEL -- 3. BUSINESS CYCLE STATISTICS - DATA AND MODEL SIMULATIONS -- 4. BUSINESS CYCLE STATISTICS - VARIANTS OF THE BASELINE MODEL -- Figures -- 1. SIMPLIFIED STRUCTURE OF THE MODEL ECONOMY -- 2. MICRO UNCERTAINTY: CROSS-SECTIONAL DISPERSION OF ESTABLISHMENT- LEVEL TFP -- 3. MACRO UNCERTAINTY: TIME-VARYING VOLATILITY OF AGGREGATE TFP -- 4. THE IMPACT OF MACRO AND MICRO UNCERTAINTY SHOCKS -- 5. THE IMPACT OF UNCERTAINTY SHOCKS: THE ROLE OF PRICE STICKINESS -- 6. THE IMPACT OF UNCERTAINTY SHOCKS: THE ROLE OF CREDIT FRICTIONS -- 7. THE IMPACT OF UNCERTAINTY SHOCKS ON OUTPUT: THE ROLE OF HOUSE- HOLDS' PREFERENCES, RISK AVERSION, AND MONETARY POLICY
Language
eng
Literary Form
non fiction
Physical Description
1 online resource (46 pages)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781484324059

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