Uncertainty traps

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• dc.contributor.author Fajgelbaum, Pablo
• dc.contributor.author Schaal, Edouard
• dc.contributor.author Taschereau-Dumouchel, Mathieu
• dc.date.accessioned 2021-09-30T09:28:05Z
• dc.date.available 2021-09-30T09:28:05Z
• dc.date.issued 2017
• dc.description Includes supplementary materials: online appendix; replication file
• dc.description.abstract We develop a theory of endogenous uncertainty and business cycles in which short-lived shocks can generate long-lasting recessions. In the model, higher uncertainty about fundamentals discourages investment. Since agents learn from the actions of others, information flows slowly in times of low activity and uncertainty remains high, further discouraging investment. The economy displays uncertainty traps: self-reinforcing episodes of high uncertainty and low activity. Although the economy recovers quickly after small shocks, large temporary shocks may have long-lasting effects on the level of activity. The economy is subject to an information externality but uncertainty traps may remain in the efficient allocation. Embedding the mechanism in a standard business cycle framework, we find that endogenous uncertainty increases the persistence of large recessions and improves the performance of the model in accounting for the Great Recession.
• dc.description.sponsorship Financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV2015-0563).
• dc.format.mimetype application/pdf
• dc.identifier.citation Fajgelbaum PD, Schaal E, Taschereau-Dumouchel M. Uncertainty traps. Q J Econ. 2017 Nov; 132(4):1641-92. DOI: 10.1093/qje/qjx021
• dc.identifier.doi http://dx.doi.org/10.1093/qje/qjx021
• dc.identifier.issn 0033-5533
• dc.identifier.uri http://hdl.handle.net/10230/48535
• dc.language.iso eng
• dc.publisher Oxford University Press
• dc.relation.ispartof Quarterly Journal of Economics. 2017 Nov; 132(4):1641-92
• dc.relation.projectID info:eu-repo/grantAgreement/ES/1PE/SEV2015-0563
• dc.rights © Oxford University Press. This is a pre-copyedited, author-produced version of an article accepted for publication in The Quarterly Journal of Economics following peer review. The version of record Fajgelbaum PD, Schaal E, Taschereau-Dumouchel M. Uncertainty traps. The Quarterly Journal of Economics. 2017 Nov; 132(4):1641–92. DOI: 10.1093/qje/qjx021 is available online at: https://academic.oup.com/qje/article/132/4/1641/3857745
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.subject.other Incertesa
• dc.subject.other Recessions econòmiques
• dc.subject.other Inversions
• dc.title Uncertainty traps
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/acceptedVersion