eprintid: 34996 rev_number: 20 eprint_status: archive userid: 1482 importid: 105 dir: disk0/00/03/49/96 datestamp: 2020-05-20 09:42:02 lastmod: 2021-10-31 02:00:06 status_changed: 2021-03-19 16:27:07 type: article succeeds: 34991 metadata_visibility: show creators_name: Altug, Sumru creators_name: Collard, Fabrice creators_name: Cakmakli, Cem creators_name: Mukerji, Sujoy creators_name: Ozsöylev, Han creators_idrefppn: 050061496 creators_affiliation: Toulouse School of Economics creators_halaffid: 1002422 title: Ambiguous business cycles: a quantitative assessment ispublished: pub subjects: subjects_ECO abstract: In this paper, we examine the cyclical dynamics of a Real Business Cycle model with ambiguity averse consumers and investment irreversibility using the smooth ambiguity model of Klibanoff et al. (2005, 2009). Ambiguity of belief about the productivity process arises as agents do not know the process driving variation in aggregate TFP, and they must make inferences regarding the true process at the same time as they infer the behavior of the unobserved temporary component using a Kalman filtering algorithm. Our findings may be summarized as follows. First, the standard business cycle facts hold in our framework, which are not altered significantly by changes in the degree of ambiguity aversion. Second, we demonstrate a role for information and learning effects, and show that lower initial ambiguity or greater confidence coupled with learning dynamics lowers the volatility and increases the persistence in all of the key macroeconomic variables. Third, comparing the performance of our model to the New Keynesian business cycle model of Ilut and Schneider (2014) with maxmin expected utility, we find that the version of their model without nominal and real frictions turns out to have limited success at matching the moments for the quantity variables. In the maxmin expected utility framework, the worst case scenario instills too much caution on the part of agents who, in the absence of a key set of nominal and real frictions, end up excessively reducing their responses to TFP shocks. date: 2020 date_type: published publisher: Elsevier id_number: 10.1016/j.red.2020.04.005 official_url: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2020/wp_tse_1107.pdf faculty: tse divisions: tse keywords: Ambiguity, ambiguity aversion, information and learning, investment irreversibility, Real Business Cycles, New Keynesian model. language: en has_fulltext: TRUE doi: https://doi.org/10.1016/j.red.2020.04.005 view_date_year: 2020 full_text_status: public publication: Review of Economic Dynamics volume: vol. 38 place_of_pub: San Diego, CA pagerange: 220-237 refereed: TRUE issn: 1094-2025 oai_identifier: oai:tse-fr.eu:124319 harvester_local_overwrite: official_url harvester_local_overwrite: volume harvester_local_overwrite: issn harvester_local_overwrite: pending harvester_local_overwrite: creators_idrefppn harvester_local_overwrite: creators_halaffid harvester_local_overwrite: abstract harvester_local_overwrite: publisher harvester_local_overwrite: id_number harvester_local_overwrite: place_of_pub harvester_local_overwrite: publish_to_hal harvester_local_overwrite: title harvester_local_overwrite: hal_id harvester_local_overwrite: hal_version harvester_local_overwrite: hal_url harvester_local_overwrite: hal_passwd oai_lastmod: 2021-03-02T08:57:56Z oai_set: tse site: ut1 publish_to_hal: TRUE hal_id: hal-03039262 hal_passwd: 92kesddg hal_version: 1 hal_url: https://hal.archives-ouvertes.fr/hal-03039262 citation: Altug, Sumru, Collard, Fabrice , Cakmakli, Cem, Mukerji, Sujoy and Ozsöylev, Han (2020) Ambiguous business cycles: a quantitative assessment. Review of Economic Dynamics, vol. 38. pp. 220-237. document_url: https://publications.ut-capitole.fr/id/eprint/34996/1/wp_tse_1107.pdf