Fiscal Volatility Shocks and Economic Activity

Fernández-Villaverde, Jesús; Guerrón‐Quintana, Pablo; Kuester, Keith; Rubio-Ramı́rez, Juan Francisco

doi:10.1257/aer.20121236

Cited by 713 publications

(468 citation statements)

References 63 publications

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“…Indeed, these two episodes cannot be fully explained by low-frequency movements of productivity growth only. Our finding therefore also contributes to the recent evidence on the macroeconomic effects of measures of volatility and uncertainty (see Bloom, 2009;Baker, Bloom, & Davis, 2012;Fernandez-Villaverde et al, 2011).…”

supporting

confidence: 80%

Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

Benigno

Ricci

Surico

2015

Review of Economics and Statistics

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This paper presents a new empirical regularity between the volatility of productivity growth and long-run unemployment for a given level of long-run productivity growth. A theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding. The model tends to fit U.S. long-run unemployment better than a specification based on long-run productivity growth only, especially during the Great Moderation and the Great Recession.

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supporting

confidence: 80%

Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

Benigno

Ricci

Surico

2015

Review of Economics and Statistics

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“…Fernández‐Villaverde et al. () find that uncertainty about fiscal policy, as measured by time‐varying volatility of tax and spending processes, has negative effects on economic activity.…”

mentioning

confidence: 99%

The Price of Political Uncertainty: Theory and Evidence from the Option Market

Kelly¹,

Pástor²,

Veronesi

2016

The Journal of Finance

601

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We empirically analyze the pricing of political uncertainty, guided by a theoretical model of government policy choice. To isolate political uncertainty, we exploit its variation around national elections and global summits. We find that political uncertainty is priced in the equity option market as predicted by theory. Options whose lives span political events tend to be more expensive. Such options provide valuable protection against the price, variance, and tail risks associated with political events. This protection is more valuable in a weaker economy and amid higher political uncertainty. The effects of political uncertainty spill over across countries.

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“…For example, while the fiscal cliff uncertainty shock developed in this paper affects both first and second moments, as highlighted in Figure , the fiscal volatility shocks in Fernández‐Villaverde et al. () affect only the second moments. Fernández‐Villaverde et al.…”

Section: Discussionmentioning

confidence: 69%

“…Fernández‐Villaverde et al. () find vector autoregression (VAR) evidence that a two standard deviation shock to the volatility in capital taxes lowers output around 0.3%, while consumption falls to a lower extent and investment falls more significantly. These are slightly smaller estimates than the fiscal noise case shown in Figure , but follow a similar pattern.…”

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confidence: 99%

Uncertainty and Fiscal Cliffs

Davig¹,

Foerster²

2018

J of Money Credit Banking

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Large pending fiscal policy changes, such as in the United States in 2012 or in Japan with consumption taxes, often generate considerable uncertainty. “Fiscal cliff” episodes have several features: an announced possible future change, a skewed set of possible outcomes, the possibility that implementation may not actually occur, and a known resolution date. This paper develops a model capturing these features and studies their impact. Fiscal cliff uncertainty shocks have immediate impact, with a magnitude that depends on the probability of implementation, which generates economic volatility. The possibility of fiscal cliffs lowers economic activity even in periods of relative certainty.

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Fiscal Volatility Shocks and Economic Activity

Abstract: We study how Policymakers and business leaders alike saw the US economy between 2008 and 2014 as being buffeted by larger-than-usual uncertainty about fiscal policy. As illustrated by a number of prolonged struggles at all levels of government, there 1

Cited by 713 publications

References 63 publications

Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

Unemployment and Productivity in the Long Run: The Role of Macroeconomic Volatility

The Price of Political Uncertainty: Theory and Evidence from the Option Market

Uncertainty and Fiscal Cliffs

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