Organized by:
- Nick Bloom, Stanford University
- Steve Davis, University of Chicago
- Jesus Fernandez-Villaverde, University of Pennsylvania.
The session will cover recent work on the causes and effects of changes in volatility and uncertainty in the aggregate economy. Many observers, including policymakers such as Bernanke, Summers, and Romer, have highlighted that these have been major driving factors in the recent credit-crunch recession and advanced heuristic arguments of why this might have been the case. Unfortunately, our theoretical and empirical understanding of these topics is limited since only recently have macroeconomists started working on these issues from a more systematic basis. Nevertheless, the preliminary results in the literature suggest changes in volatility and uncertainty similar to the ones observed for the U.S. economy are likely significant factors in business cycle fluctuations. Moreover, the presence of changes in volatility and uncertainty has important implications for the design of optimal monetary and fiscal policies.
