A0486
Title: Uncertainty through the production network: Evidence from stock market data
Authors: Matteo Cacciatore - HEC Montreal (Canada) [presenting]
Giacomo Candian - HEC Montreal (Canada)
Abstract: The focus is on how uncertainty propagates through the production network. First, a disaggregated, forward-looking measure of sectoral uncertainty is constructed using option-implied volatility data for U.S. firms. Next, the dynamic effects of sectoral uncertainty are estimated within and across sectors, as well as for the aggregate economy. An exogenous increase in uncertainty results in a persistent decline in employment and a rise in producer prices in the affected industry. Furthermore, higher uncertainty lowers employment and producer prices in suppliers' industries, similar to a negative demand shock for upstream producers. In contrast, uncertainty propagates as a negative supply shock downstream, reducing employment but increasing prices. At the aggregate level, sectoral uncertainty shocks are contractionary, with larger effects when shocks originate relatively more upstream. The aggregate effects on prices depend on where in the production network uncertainty rises.
