Uncertainty and Growth Disasters

53 Pages Posted: 2 Nov 2020 Last revised: 27 Jan 2023

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Sai Ma

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

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. Third, the negative response of growth to uncertainty shocks is larger when the equity market is more volatile. We build a model in which growth and uncertainty are both endogenous: rapid adoption of new technology raises economic uncertainty and may cause measured productivity to decline. The equilibrium growth distribution is negatively skewed and higher uncertainty leads to a thicker left tail and to more labor reallocation among jobs and among

Suggested Citation

Jovanovic, Boyan and Ma, Sai, Uncertainty and Growth Disasters (October 2020). NBER Working Paper No. w28024, Available at SSRN: https://ssrn.com/abstract=3723261

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

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Sai Ma

Board of Governors of the Federal Reserve System ( email )

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