Dear all:
I have doubts about uncertainty and volatility.
As Bloom(2009,Econometrica):“The uncertainty effect is simulated by allowing unit expectations over sigma to change after the shock but holds the variance of the actual draw of shocks constant. The volatility effect is simulated by holding unit expectations over sigma constant but allowing the realized volatility of business conditions to change after the shock.”
and I also see Born and Pfeifer (2014b) appendix.
I have two questions:
(1) Is the uncertainty effect described by Bloom the same as EMAS?
and volatility effect is equivalent to ergodic mean?
(2) If the above concept holds, how to interpret:
“volatility effect hold unit expectations constant”.
I think the ergodic mean is time-varying in Andreasen et al(2013).
The Bloom model is solved with a different solution technique that allows fixing expectations about the future. It is not directly comparable to what can be done with perturbation techniques.