Adam Smith Business School

Professor Céline Poilly (AMSE - Aix-Marseille University)

The Variety Effect in Times of Uncertainty (joint with Francesco Saverio Gaudio)
Thursday, 27 November 2025, 15:00–16:30
Room 386AB, Adam Smith Business School

Abstract

This paper shows that the variety effect, captured through monopolistic competition and increasing returns to specialization, acts as an amplification mechanism in the transmission of macroeconomic uncertainty shocks. By generating endogenous fluctuations in aggregate productivity through changes in the range of available products, due to firm entry and exit, the variety effect reinforces the risk channels through which uncertainty shocks propagate to the economy. The estimated intensity of the variety effect implies sizable productivity fluctuations, which shape the joint dynamics of households' marginal utility, firms' profits, and relative prices. When the equity risk-premium channel dominates, the variety effect implies deeper uncertainty-driven recessions, as discouraged investment in the stock market and the consequent fall in product creation leads to a drop in endogenous productivity.

Biography

Céline Poilly is Professor of Economics at Aix-Marseille School of Economics. Previously, she was Assistant Professor at the University of Louvain-la-Neuve and University of Lausanne. Her research interests include Macroeconomics, monetary and fiscal policies, labor macroeconomics, international macro.

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First published: 14 November 2025