Associate Professor Nicholas Bloom studied 19 previous uncertainty shocks – events like 9/11, the Cuban missile crisis, the assassination of President Kennedy – and the only certain thing about these is that they lead to large short-run recessions. When people are uncertain about the future they wait and do nothing.
Based on my research, I predict another short, sharp contraction in late 2011 of about 1 percent, with a rebound in spring 2012. This research looks at the average impact of the previous 19 uncertainty shocks to predict the impact of future shocks. Typically, these lead to reductions of growth of about 2 percent immediately after the shock, with a recovery about six months later once uncertainty subsides.
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