The Uncertainty Multiplier and Business Cycles

Hikaru Saijo

No 16, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: I study a business cycle model where agents learn about the state of the economy by accumulating captal. During recessions, agents invest less, abd 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 amplifies business cycles. I use the calibrated model to measure the size of this uncertainty multiplier.

Pages: 42 pages
Date: 2013-11
New Economics Papers: this item is included in nep-dge and nep-mac
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Related works:
Journal Article: The uncertainty multiplier and business cycles (2017)
Working Paper: The Uncertainty Multiplier and Business Cycles (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:upd:utppwp:016

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