Cosmin Ilut New Research in the American Economic Review
25 February 2014 11:11AM
A specialist in macroeconomics and international finance, Professor Cosmin Ilut has new research that will be published in the American Economic Review. His paper, "Ambiguous Business Cycles," was written jointly with Martin Schneider, and will be featured in an upcoming issue of the highly regarded journal. Following is the paper's abstract:
This paper studies a New Keynesian business cycle model with agents who are averse to ambiguity (Knightian uncertainty). Shocks to confidence about future TFP are modeled as changes in ambiguity. To assess the size of those shocks, our estimation uses not only data on standard macro variables, but also incorpo- rates the dispersion of survey forecasts about growth as a measure of confidence. Our main result is that TFP and confidence shocks together can explain roughly two thirds of business cycle frequency movements in the major macro aggregates. Confidence shocks account for about 70% of this variation.