2010 Frisch Medal Award

The Frisch Medal has been established by the Econometric Society to encourage the creation of good applied work and its submission to Econometrica. It is given every two years for an applied article (empirical or theoretical) published in Econometrica during the past five years.

The selection committee for 2010 (Richard Blundell, Chair; David Card; Lars Peter Hansen) awarded the Frisch Medal of the Econometric Society to Nicholas Bloom for his article, "The Impact of Uncertainty Shocks", Econometrica, 77(3), May 2009, 623-685.

The paper begins by presenting suggestive evidence of the importance of aggregate uncertainty shocks, measured by spikes in stock market volatility, on hiring and investment. It then develops and estimates a micro-level model of employment and investment that incorporates uncertainty at the level of the business unit, the firm, and the aggregate economy. Adjustments costs allow for partial irreversibility and for fixed costs in labour and capital. The estimated dynamic model of employment and investment is shown to imply a sizeable region of inaction where the option value of waiting dominates. Simulating the estimated model, shocks to aggregate uncertainty are shown to have a quantitatively important impact on output an employment behaviour.