Real Activity and Uncertainty Shocks: The Long and the Short of It

摘要

We propose a nonrecursive VAR identification strategy that separately identifies short‐term and long‐term uncertainty shocks by exploiting sign restrictions implied by a stylized framework and a DSGE model featuring both types of shocks. We find that long‐term uncertainty shocks exert strong and persistent effects on real activity, whereas short‐term shocks have limited real effects. We use the DSGE model to study their differential propagation and show that time‐to‐build is an important ingredient allowing the model to account for the stark empirical asymmetry in investment and, in turn, output—both contract sharply after long‐term shocks but only modestly after short‐term shocks.