Uncertainty and Monetary Policy in Good and Bad Times
Giovanni Caggiano,
Efrem Castelnuovo and
Gabriela Nodari
RBA Research Discussion Papers from Reserve Bank of Australia
Abstract:
We investigate the role played by systematic monetary policy in the United States in tackling the real effects of uncertainty shocks in recessions and expansions. We model key indicators of the business cycle with a nonlinear vector autoregression model that allows for different dynamics in busts and booms. Uncertainty shocks are identified by focusing on historical events that are associated with jumps in financial volatility. Our results show that uncertainty shocks hitting in recessions trigger a more abrupt drop and a faster recovery in real economic activity than in expansions. Counterfactual simulations suggest that the effectiveness of systematic US monetary policy in stabilising real activity in the aftermath of an uncertainty shock is greater in expansions. Finally, we provide empirical and narrative evidence pointing to a risk management approach by the Federal Reserve.
Keywords: uncertainty shocks; nonlinear smooth transition vector autoregressions; generalised impulse response functions; systematic monetary policy (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-cba, nep-cta, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)
Downloads: (external link)
https://www.rba.gov.au/publications/rdp/2017/pdf/rdp2017-06.pdf (application/pdf)
Related works:
Working Paper: Uncertainty and Monetary Policy in Good and Bad Times (2017) 
Working Paper: Uncertainty and Monetary Policy in Good and Bad Times (2017) 
Working Paper: Uncertainty and monetary policy in good and bad times (2017) 
Working Paper: Uncertainty and Monetary Policy in Good and Bad Times (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2017-06
Access Statistics for this paper
More papers in RBA Research Discussion Papers from Reserve Bank of Australia Contact information at EDIRC.
Bibliographic data for series maintained by Paula Drew (drewp@rba.gov.au).