Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Uncertainty Shocks, Innovation, and Productivity

Uncertainty Shocks, Innovation, and Productivity AbstractIn this paper, we argue that macroeconomic uncertainty shocks cause a persistent decline in economic activity, investment in R&D, and total factor productivity. After providing empirical evidence, we build a DSGE model with sticky prices and endogenous growth through investment in R&D. In this framework, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The reduction in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term reduction in the main macroeconomic aggregates. When households feature Epstein–Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which severely exacerbates the precautionary savings motive and the overall adverse effects of uncertainty shocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Uncertainty Shocks, Innovation, and Productivity

Bonciani, Dario; Oh, Joonseok
The B.E. Journal of Macroeconomics , Volume 23 (1): 57 – Jan 1, 2023
Download PDF
57 pages

Loading next page...
 
/lp/de-gruyter/uncertainty-shocks-innovation-and-productivity-4ZUPSWkoi0
Publisher
de Gruyter
Copyright
© 2022 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2021-0074
Publisher site
See Article on Publisher Site

Abstract

AbstractIn this paper, we argue that macroeconomic uncertainty shocks cause a persistent decline in economic activity, investment in R&D, and total factor productivity. After providing empirical evidence, we build a DSGE model with sticky prices and endogenous growth through investment in R&D. In this framework, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The reduction in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term reduction in the main macroeconomic aggregates. When households feature Epstein–Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which severely exacerbates the precautionary savings motive and the overall adverse effects of uncertainty shocks.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Jan 1, 2023

Keywords: uncertainty shocks; R&D; total factor productivity; endogenous growth; E32; O40

There are no references for this article.