This paper investigates the role of uncertainty shocks in driving business cycles. It demonstrates that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Using detailed Census microdata from 1972 to 2010, the authors find that the dispersion of plant-level total factor productivity (TFP) shocks increases significantly during recessions, with a 76% rise in variance during the Great Recession. Similarly, the dispersion of output growth increases by 152% during the recession. These findings suggest that recessions are characterized by negative first-moment and positive second-moment shocks to the establishment-level driving processes. The paper also shows that uncertainty is strongly countercyclical at the industry level, with industry output growth negatively correlated with the dispersion of TFP shocks within the industry. This indicates that bad times are also uncertain times in terms of increased cross-sectional dispersion of TFP shocks. The authors further find that this increase in variance during periods of slow growth is not due to the slowdown itself, as evidenced by the lack of significant causal impact of trade reforms and exchange rate changes on industry uncertainty. In a dynamic stochastic general equilibrium (DSGE) model, the authors show that uncertainty shocks can explain drops and rebounds in GDP of around 3%. The model incorporates time-varying uncertainty, heterogeneous firms, and non-convex adjustment costs in both capital and labor. The results show that increased uncertainty makes firms more cautious in investing and hiring, leading to significant falls in hiring, investment, and output. Additionally, increased uncertainty reduces productivity growth by reducing the degree of reallocation in the economy. The paper also examines the effects of uncertainty on policy effectiveness. It shows that time-varying uncertainty initially dampens the effect of expansionary policies but later increases their effectiveness. The authors relate their work to several strands in the literature, including the role of TFP shocks in business cycles, investment under uncertainty, and microeconomic rigidities in general equilibrium macro models. The paper finds that plant-level, firm-level, and industry-level measures of volatility and uncertainty are strongly countercyclical, suggesting that microeconomic uncertainty rises in recessions. It also shows that industry-level uncertainty is robustly higher during industry 'recessions'. The authors find no evidence that first-moment shocks drive second-moment increases in within-industry TFP spreads. Finally, they show that establishment-level TFP shocks are a good proxy for uncertainty, as they are correlated with firm and industry time series uncertainty measures. The paper concludes that uncertainty shocks play a significant role in driving business cycles.This paper investigates the role of uncertainty shocks in driving business cycles. It demonstrates that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Using detailed Census microdata from 1972 to 2010, the authors find that the dispersion of plant-level total factor productivity (TFP) shocks increases significantly during recessions, with a 76% rise in variance during the Great Recession. Similarly, the dispersion of output growth increases by 152% during the recession. These findings suggest that recessions are characterized by negative first-moment and positive second-moment shocks to the establishment-level driving processes. The paper also shows that uncertainty is strongly countercyclical at the industry level, with industry output growth negatively correlated with the dispersion of TFP shocks within the industry. This indicates that bad times are also uncertain times in terms of increased cross-sectional dispersion of TFP shocks. The authors further find that this increase in variance during periods of slow growth is not due to the slowdown itself, as evidenced by the lack of significant causal impact of trade reforms and exchange rate changes on industry uncertainty. In a dynamic stochastic general equilibrium (DSGE) model, the authors show that uncertainty shocks can explain drops and rebounds in GDP of around 3%. The model incorporates time-varying uncertainty, heterogeneous firms, and non-convex adjustment costs in both capital and labor. The results show that increased uncertainty makes firms more cautious in investing and hiring, leading to significant falls in hiring, investment, and output. Additionally, increased uncertainty reduces productivity growth by reducing the degree of reallocation in the economy. The paper also examines the effects of uncertainty on policy effectiveness. It shows that time-varying uncertainty initially dampens the effect of expansionary policies but later increases their effectiveness. The authors relate their work to several strands in the literature, including the role of TFP shocks in business cycles, investment under uncertainty, and microeconomic rigidities in general equilibrium macro models. The paper finds that plant-level, firm-level, and industry-level measures of volatility and uncertainty are strongly countercyclical, suggesting that microeconomic uncertainty rises in recessions. It also shows that industry-level uncertainty is robustly higher during industry 'recessions'. The authors find no evidence that first-moment shocks drive second-moment increases in within-industry TFP spreads. Finally, they show that establishment-level TFP shocks are a good proxy for uncertainty, as they are correlated with firm and industry time series uncertainty measures. The paper concludes that uncertainty shocks play a significant role in driving business cycles.