Uncertainty about the future rises in recessions. But is uncertainty a source of business cycles or an endogenous response to them, and does the type of uncertainty matter? We propose a novel SVAR identification strategy to address these questions via inequality constraints on the structural shocks. We find that sharply higher macroeconomic uncertainty in recessions is often an endogenous response to output shocks, while uncertainty about financial markets is a likely source of output fluctuations.
Ludvigson, Sydney C., Sai Ma, and Serena Ng.
"Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response?"
American Economic Journal: Macroeconomics,
Criteria for Decision-Making under Risk and Uncertainty
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Information and Market Efficiency; Event Studies; Insider Trading