Uncertainty shocks, innovation, and productivity
Uncertainty shocks, innovation, and productivity
In 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.
R&D, endogenous growth, total factor productivity, uncertainty shocks
279-335
Bonciani, Dario
a2b065a5-415c-4554-8d3a-4087e80b7598
Oh, Joonseok
020d4770-4b18-4b76-bf81-d3e58b9f4eed
Bonciani, Dario
a2b065a5-415c-4554-8d3a-4087e80b7598
Oh, Joonseok
020d4770-4b18-4b76-bf81-d3e58b9f4eed
Bonciani, Dario and Oh, Joonseok
(2022)
Uncertainty shocks, innovation, and productivity.
The B.E. Journal of Macroeconomics, 23 (1), .
(doi:10.1515/bejm-2021-0074).
Abstract
In 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.
Text
Accepted manuscript
- Accepted Manuscript
Restricted to Repository staff only
Request a copy
More information
e-pub ahead of print date: 4 March 2022
Keywords:
R&D, endogenous growth, total factor productivity, uncertainty shocks
Identifiers
Local EPrints ID: 484885
URI: http://eprints.soton.ac.uk/id/eprint/484885
ISSN: 1935-1690
PURE UUID: fe7ae231-3b7c-4802-a353-d2ad514e6d81
Catalogue record
Date deposited: 23 Nov 2023 18:28
Last modified: 17 Mar 2024 06:00
Export record
Altmetrics
Contributors
Author:
Dario Bonciani
Author:
Joonseok Oh
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics