Complementarity and macroeconomic uncertainty

Macroeconomic uncertainty regularly fluctuates in the data. Theory suggests complementarity between capital and labor inputs production can generate time-varying endogenous because concavity function influences how output responds to productivity shocks different states of economy. This paper examines whether is a quantitatively significant source by estimating nonlinear real business cycle model with constant elasticity substitution exogenous volatility shocks. When matching share moments, we find at most 16% endogenous. An estimated without endogenously all empirical variation uncertainty, but only expense significantly overstating share. • Does explain data? The has CES At 16 percent crucial identify parameter. Matching data requires very low CES.