Jaroslav Borovička, NYU: Identifying ambiguity shocks in business cycle models using survey data

ESOP seminar. Jaroslav Borovička is an Assistant Professor of Economics at New York University. He will present a paper entitled "Identifying ambiguity shocks in business cycle models using survey data", co-authored by Anmol Bhandri and Paul Ho.

Jaroslav Borovička

Jaroslav Borovička. Photo: NYU.


We develop a framework to analyze economies with agents facing time-varying concerns for model misspecification. These concerns lead agents to interpret economic outcomes and make decisions through the lens of a pessimistically biased ‘worst-case’ model. We combine survey data and implied theoretical restrictions on the relative magnitudes and comovement of forecast biases across macroeconomic variables to identify ambiguity shocks as exogenous fluctuations in the worst-case model. Our solution method delivers tractable linear approximations that preserve the effects of time-varying ambiguity concerns and permit estimation using standard Bayesian techniques. Applying our framework to an estimated New-Keynesian business cycle model with frictional labor markets, we find that ambiguity shocks explain a substantial portion of the variation in labor market quantities.

Read the paper here (.pdf)

Host: Marcus Hagedorn

Published Oct. 7, 2016 3:10 PM - Last modified Mar. 1, 2017 11:34 AM