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Luca Gambetti (Universitat Autonoma de Barcelona)

16 May 2018 at 12:00 PM - 1:15 PM

Room 207, Campus on Viale Romania, 32

Speaker: Luca Gambetti , Universitat Autonoma de Barcelona

Title:  News,Uncertainty and Economic Fluctuations (No News is Good News) 

Abstract: We formalize the idea
that uncertainty is generated by news about future developments in economic
conditions which are not perfectly predictable by the agents. Using a simple
model of limited information, we show that uncertainty shocks can be obtained as
the square of news shocks. We develop a two-step econometric procedure to
estimate the effects of news and we find highly non-linear effects. Large news
shocks increase uncertainty. This mitigates the effects of good news and
amplifies the effects of bad news in the short run. By contrast, small news
shocks reduce uncertainty. This amplifies the effects of good news and
mitigates the effects of bad news in the short run. The Volcker recession and
the Great Recession were exacerbated by the uncertainty effects of news.