Nick Bloom (Stanford), Steve Davis (University of Chicago), Jesus Fernandez-Villaverde (University of Pennsylvania), Serena Ng (Columbia) and John Rogers (Federal Reserve Board)
The session will cover recent work on the causes and effects of changes in volatility and uncertainty in the aggregate economy, which is incredibly topical given the ongoing Brexit turmoil and US election outcomes. Many observers, including policymakers such as Bernanke, Summers and Romer, have highlighted that these have been major driving factors in the recent credit-crunch recession and advanced heuristic arguments of why this might have been the case. Unfortunately, our theoretical and empirical understanding of these topics is limited since only recently have macroeconomist started working on these issues from a more systematic basis. Nevertheless, the preliminary results in the literature, to which all four of us have contributed, are rather encouraging. Changes in volatility and uncertainty similar to the ones observed for the U.S. economy can be shown to be quantitatively significant factors in business cycle fluctuations and a key element in a successful explanation of aggregate fluctuations. Moreover, the presence of changes in volatility and uncertainty has important implications for the design of optimal policies and for our assessment of the responses of central banks and fiscal authorities to recent developments in the world economy. Our goal is to have a balanced mix of theoretical and empirical papers and a strong interest in applications to policy.