Dynamic Stochastic General Equilibrium models are often tested against empirical VARs or estimated by minimizing the distance between the model's and the VAR impulse response functions. These methodologies require that the data-generating process consistent with the DSGE theoretical model has a...

We show that limited wage flexibility in economic downturns generates strong and state-dependent amplification of uncertainty shocks. It also explains the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market...

We show that limited wage flexibility in economic downturns generates strong and state-dependent amplification of uncertainty shocks. It also explains the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market...

We estimate a monthly Interacted-VAR model for euro area macroeconomic aggregates allowing for the impact of uncertainty shocks to depend on the average outlook of the economy measured by survey data. We find that, in response to an uncertainty shock, the peak decrease in industrial production...