DP12083 Uncertainty and the Great Recession

Author(s): Benjamin Born, Sebastian Breuer, Steffen Elstner
Publication Date: June 2017
Keyword(s): great recession, Uncertainty shocks
JEL(s): C32, E32
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12083

Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the U.S.? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10 percent of the drop in GDP at the height of the recession and up to 0.7 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.