Uncertainty and growth disasters

Boyan Jovanovic, Sai Ma

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper documents several facts on the real effects of economic uncertainty. First, higher uncertainty is associated with a more dispersed distribution of output growth. Second, the relation is highly asymmetric: A rise in uncertainty is associated with a sharp decline in the lower tail of the growth distribution whereas it has a much smaller and insignificant impact on its upper tail. We build a model in which growth and uncertainty are both endogenous: rapid adoption of new technology raises economic uncertainty and may occasionally cause measured productivity to decline. The equilibrium growth distribution is negatively skewed and higher uncertainty leads to a thicker left tail.

    Original languageEnglish (US)
    JournalReview of Economic Dynamics
    DOIs
    StateAccepted/In press - 2021

    Keywords

    • Downside risk
    • Growth-at-risk
    • Uncertainty and growth
    • Volatility

    ASJC Scopus subject areas

    • Economics and Econometrics

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