This paper proposes uncertainty shocks as a new driver of business cycles. It demonstrates that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly the 2007-2009 Great Recession. The authors quantify the impact of time-varying uncertainty in a dynamic stochastic general equilibrium model with heterogeneous firms, finding that uncertainty shocks can explain around 3% drops and rebounds in GDP. They also show that increased uncertainty alters the relative effectiveness of government policies, initially making them less effective and then more effective. The paper uses detailed Census microdata from 1972 to 2010 to develop new empirical measures of uncertainty, highlighting four main results: (1) plant-level TFP shocks increase in variance during recessions, (2) uncertainty is countercyclical at the industry level, (3) this increase in variance is not driven by the slowdown itself, and (4) large plant-level TFP shocks are correlated with more volatile daily stock returns. The authors then build a DSGE model to study the response of the economy to uncertainty shocks, finding that increased uncertainty leads to significant falls in hiring, investment, and output, and reduces productivity growth. They also investigate the effects of uncertainty on policy effectiveness, showing that uncertainty initially dampens the impact of expansionary policies but later increases it. The paper contributes to the literature on the role of TFP shocks in business cycles and the impact of uncertainty on investment and employment.This paper proposes uncertainty shocks as a new driver of business cycles. It demonstrates that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly the 2007-2009 Great Recession. The authors quantify the impact of time-varying uncertainty in a dynamic stochastic general equilibrium model with heterogeneous firms, finding that uncertainty shocks can explain around 3% drops and rebounds in GDP. They also show that increased uncertainty alters the relative effectiveness of government policies, initially making them less effective and then more effective. The paper uses detailed Census microdata from 1972 to 2010 to develop new empirical measures of uncertainty, highlighting four main results: (1) plant-level TFP shocks increase in variance during recessions, (2) uncertainty is countercyclical at the industry level, (3) this increase in variance is not driven by the slowdown itself, and (4) large plant-level TFP shocks are correlated with more volatile daily stock returns. The authors then build a DSGE model to study the response of the economy to uncertainty shocks, finding that increased uncertainty leads to significant falls in hiring, investment, and output, and reduces productivity growth. They also investigate the effects of uncertainty on policy effectiveness, showing that uncertainty initially dampens the impact of expansionary policies but later increases it. The paper contributes to the literature on the role of TFP shocks in business cycles and the impact of uncertainty on investment and employment.