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Uncertainty, Attention Allocation and Monetary Policy Asymmetry

Kwangyong Park

No 2019-5, Working Papers from Economic Research Institute, Bank of Korea

Abstract: We provide a theoretical framework, with empirical evidence, where monetary policy effects become stronger during periods of heightened uncertainty in productivity. Higher aggregate and idiosyncratic productivity volatility induce firms, which are constrained by information capacity, to allocate more attention to productivities and less to the monetary policy shock. This makes firms under-react to monetary policy actions, which increases real effects of monetary policy shocks. A threshold vector autoregression, which incorporates instrumental variables to identify the monetary policy shock, finds that monetary policy shocks have stronger impacts on output when uncertainty, as measured by VIX, is high.

Keywords: Monetary policy asymmetry; Uncertainty; Information choice (search for similar items in EconPapers)
JEL-codes: D8 E31 E52 (search for similar items in EconPapers)
Pages: 97 pages
Date: 2019-01-28
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2019-5.pdf Working Paper, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1905

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