American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Uncertainty and the Economy: The Evolving Distributions of Aggregate Supply and Demand Shocks
American Economic Journal: Macroeconomics
(pp. 102–48)
Abstract
We estimate the time-varying distribution of aggregate supply (AS) and aggregate demand (AD) shocks. We distinguish between traditional Gaussian uncertainty and "bad" uncertainty, associated with negative skewness. The Great Moderation is driven by a reduction in the volatility of AS shocks and the Gaussian component of AD shocks. The increased role of "bad" demand uncertainty implies that the conditional skewness of GDP growth and inflation has decreased over time. The correlation between AS/AD shocks and shocks to their conditional volatilities is generally strongly negative. The correlation between inflation and growth shocks has increased due to a decrease in AS volatility.Citation
Bekaert, Geert, Eric Engstrom, and Andrey Ermolov. 2026. "Uncertainty and the Economy: The Evolving Distributions of Aggregate Supply and Demand Shocks." American Economic Journal: Macroeconomics 18 (1): 102–48. DOI: 10.1257/mac.20220076Additional Materials
JEL Classification
- C52 Model Evaluation, Validation, and Selection
- D81 Criteria for Decision-Making under Risk and Uncertainty
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles