Uncertainty and the Federal Reserve’s Balance Sheet Monetary Policy

Valentina Colombo () and Alessia Paccagnini
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Valentina Colombo: Università Cattolica del Sacro Cuore

No def131, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: This study assesses the impact of financial uncertainty shocks in the US and explores the influence of monetary policy. Using a nonlinear Vector Autoregressive model, incorporating short-term interest rates and the Federal Reserve’s balance sheet policy, we find that the reaction of the monetary policy is asymmetric across the business cycle. The state-dependent responses in consumption and investment significantly influence GDP fluctuations. A counterfactual analysis reveals that balance sheet-related monetary policy helps reduce both the duration and severity of the recessionary impacts caused by these shocks.

Keywords: Uncertainty; Smooth Transition VAR; Nonlinearities; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: C50 E32 E52 (search for similar items in EconPapers)
Pages: 53
Date: 2024-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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