SMU SOE Seminar (Sep 5, 2018): Creative Destruction and Uncertainty

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ABSTRACT Uncertainty rises in recessions. But does uncertainty cause downturns or vice versa? This paper argues that uncertainty fluctuates endogenously in response to technology growth changes. In a firm dynamics model with endogenous technology adoption, faster technology growth widens the dispersion of firm-level productivity shocks, a benchmark uncertainty measure. Moreover, faster growth spurs a creative destruction process, generates a temporary downturn and renders uncertainty counter-cyclical. Estimates from structural VARs on U.S. data confirm the model's predictions. On average, shocks to technology growth explain 1/4 of the cyclical variation in uncertainty, and up to 2/3 around the "dot-com" bubble. Keywords: Creative destruction, Uncertainty, Business cycles, Growth JEL Codes: D22, E32, D80 Click here to view the paper. Click here to view the CV.
		PRESENTER Petr Sedlacek University of Oxford
		RESEARCH FIELDS Macroeconomics
		DATE: 5 September 2018 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903