News and Uncertainty Shocks

We provide novel empirical evidence linking the effects of technology news shocks with uncertainty shocks. The correlation between news and financial uncertainty shocks implies that when financial uncertainty shocks hit the economy, utilization-adjusted total factor productivity increases over the medium term. This leads to an attenuation of the negative impact of increasing uncertainty on economic activity. The correlation also implies that the positive effects of technology news shocks on output, consumption, investment and hours are attenuated over the short term. Supported by these empirical results, we propose an identification strategy to obtain the impact of `good uncertainty' shocks and disentangle the importance of technological news, good and bad uncertainties, and ambiguity shocks in explaining business cycle variation.