We empirically document that serial uncertainty shocks are (1) common in the data and (2) have an increasingly stronger impact on the macroeconomy. In other words, a series of bad (positive) uncertainty shocks exacerbates the economic decline significantly. From a theoretical perspective, these...

Uncertainty shocks are also risk premium shocks. With countercyclical risk aversion (RA), a positive shock to uncertainty increases risk and elevates RA as consumption growth falls. The combination of high RA and high uncertainty produces significant risk premia in bad times, which in turn...

Macroeconomic and asset-pricing models are divided: modern risk modeling is rarely found in macroeconomics, and asset pricing is less successful in production economies. This divide can be understood through an irrelevance theorem: risk aversion and time-varying risk are irrelevant for the...