American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
A Simple Explanation of Countercyclical Uncertainty
American Economic Journal: Macroeconomics
vol. 16,
no. 4, October 2024
(pp. 143–71)
Abstract
This paper documents that labor search and matching frictions generate countercyclical uncertainty because the inherent nonlinearity in the flow of new matches makes employment uncertainty increasing in the number of people searching for work. Quantitatively, this mechanism is strong enough to explain uncertainty and real activity dynamics, including their correlation. Through this lens, uncertainty fluctuations are endogenous responses to changes in real activity that neither affect the severity of business cycles nor warrant policy intervention, in contrast with leading theories of the interaction between uncertainty and real activity dynamics.Citation
Bernstein, Joshua, Michael Plante, Alexander W. Richter, and Nathaniel A. Throckmorton. 2024. "A Simple Explanation of Countercyclical Uncertainty." American Economic Journal: Macroeconomics, 16 (4): 143–71. DOI: 10.1257/mac.20220134Additional Materials
JEL Classification
- D81 Criteria for Decision-Making under Risk and Uncertainty
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J41 Labor Contracts
- J63 Labor Turnover; Vacancies; Layoffs
- J64 Unemployment: Models, Duration, Incidence, and Job Search
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