We develop a theory of endogenous uncertainty in which the ability of investors to learn about firm-level fundamentals is impaired during financial crises. At the same time, higher uncertainty reinforces financial distress. Through this two-way feedback loop, a temporary financial shock can cause a persistent reduction in risky lending, output, and employment that coincides with increased uncertainty, default rates, credit spreads, and disagreement among forecasters. We embed our mechanism into standard real business cycle and New-Keynesian models and show how it generates endogenous and internally persistent processes for the efficiency and labour wedges.

We develop a quantitative theory of repeated political transitions driven by revolts and reforms. In the model, the beliefs of disenfranchised citizens play a key role in determining revolutionary pressure, which in interaction with preemptive reforms determine regime dynamics. We study the quantitative implications of the model by fitting it to data on the universe of political regimes existing between 1946 and 2010. The estimated model generates a process of political transitions that looks remarkably close to the data, replicating the empirical shape of transition hazards, the frequency of revolts relative to reforms, the distribution of newly established regime types after revolts and reforms, and the unconditional distribution over regime types.

This paper studies the cyclical dynamics of skill mismatch and quantifies its impact on labor productivity. We build a tractable directed search model, in which workers differ in skills along multiple dimensions and sort into jobs with heterogeneous skill requirements. Skill mismatch arises because of information frictions and is prolonged by search frictions. Estimated to the United States, the model replicates salient business cycle properties of mismatch. Job transitions in and out of bottom job rungs, combined with career mobility, are key to account for the empirical fit. The model provides a novel narrative for the scarring effect of unemployment.