Recessions are times of increased uncertainty and volatility at the micro level. This widely documented empirical pattern has been interpreted as the effect of uncertainty shocks, mediated by various frictions, on aggregate economic activity. We explore the hypothesis that the causation runs the...

There seems to be a widespread belief among economists, policy-makers, and members of the media that the “confidence” of households and firms is a critical component of the transmission of fiscal policy shocks into economic activity. In this paper we take this proposition to the data. We use...

This paper characterizes quantitatively the business cycle dynamics of public consumption in a neoclassical representative household model with endogenous and time-consistent public policy. We show that a simple frictionless version of such a model with productivity as the only aggregate driving...