Uncertainty and long-run economy: the role of R &D and business dynamism

In this paper, we study the effects of macroeconomic uncertainty shocks on the US economy in the long-run using an IV-SVAR methodology for the period 1960–2019. Following Piffer and Podstawski (Econ J 128(616):3266–3284, 2018), we use variation in gold prices as an instrument to identify the uncertainty shocks. We find that potential output decreases persistently in response to an uncertainty shock. Furthermore, our study shows that decline in the R &D investments and business dynamism are the two key transmission channels of the uncertainty shocks that generate long lasting effects on the economy.