Uncertainty?driven business cycles: Assessing the markup channel

Precautionary pricing and increasing markups in representative?agent DSGE models with nominal rigidities are commonly used to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent the data. Three things stand out. First, precautionary wage setting, we find that increase after Second, impulse responses price largely inconsistent standard model, both at aggregate as well industry level. Finally, contrast times?series evidence, our robustly predicts shocks have a quantitatively small impact on economy.