The Finance Uncertainty Multiplier /

We show how real and financial frictions amplify, prolong and propagate the negative impact of uncertainty shocks. We first use a novel instrumentation strategy to address endogeneity in estimating the impact of uncertainty by exploiting differential firm exposure to exchange rate, policy, and energ...

Ausführliche Beschreibung

1. Verfasser:

Alfaro, Iván

Körperschaft:

National Bureau of Economic Research

Weitere Verfasser:

Bloom, Nicholas, Lin, Xiaoji

Format:

Elektronisch E-Book

Sprache:

Englisch

Veröffentlicht:

Cambridge, Mass. National Bureau of Economic Research 2018.

Zusammenfassung:

We show how real and financial frictions amplify, prolong and propagate the negative impact of uncertainty shocks. We first use a novel instrumentation strategy to address endogeneity in estimating the impact of uncertainty by exploiting differential firm exposure to exchange rate, policy, and energy price volatility in a panel of US firms. Using common proxies for financial constraints we show that ex-ante financially constrained firms cut their investment even more than unconstrained firms following an uncertainty shock. We then build a general equilibrium heterogeneous firms model with real and financial frictions, finding financial frictions: i) amplify uncertainty shocks by doubling their impact on output; ii) increase persistence by extending the duration of the drop by 50%; and iii) propagate uncertainty shocks by spreading their impact onto financial variables. These results highlight why in periods of greater financial frictions uncertainty can be particularly damaging.

Umfang:

1 online resource: illustrations (black and white);

Anmerkungen:

May 2018.

Schlagworte:

General