Session 8: The Macroeconomics of Uncertainty and Volatility
- Nick Bloom, Stanford University
- Steve Davis, University of Chicago
- Jesus Fernandez-Villaverde, University of Pennsylvania
- Serena Ng, Columbia University
- John Rogers, Federal Reserve Board
The session will cover recent work on the causes and effects of changes in volatility and uncertainty in the aggregate economy, which is incredibly topical given the ongoing Brexit turmoil and US election outcomes. This is becoming a major economic and policy topic – for example, the recent US growth slowdown has been blamed by many commentators as due to rising trade policy uncertainty. Unfortunately, our theoretical and empirical understanding of these topics is limited since only recently have macroeconomist started working on these issues from a more systematic basis. Nevertheless, the preliminary results in the literature, to which all four of us have contributed, are rather encouraging. Changes in volatility and uncertainty similar to the ones observed for the U.S. economy can be shown to be quantitatively significant factors in business cycle fluctuations and a key element in a successful explanation of aggregate fluctuations. Moreover, the presence of changes in volatility and uncertainty has important implications for the design of optimal policies and for our assessment of the responses of central banks and fiscal authorities to recent developments in the world economy. Therefore, the session will aim to include about 20 recent papers on these topics. Our goal is to have a balanced mix of theoretical and empirical papers and a strong interest in applications to policy.