EconPapers    
Economics at your fingertips  
 

Asymmetric effects of uncertainty shocks: Normal times and financial disruptions are different

Valeriu Nalban and Andra Smădu

Journal of Macroeconomics, 2021, vol. 69, issue C

Abstract: We examine whether the response of the euro area economy to uncertainty shocks depends on financial conditions. We find strong evidence that uncertainty shocks have much more powerful effects on key macroeconomic variables in episodes marked by financial distress than in normal times. We also document that the recovery of economic activity following an adverse uncertainty shock is state dependent: it is gradual in normal times, but displays a more accelerated rebound when the shock hits during financial distress, reflecting monetary accommodation provided by the central bank. These findings are based on a non-linear data-driven model that accounts for regime switching and time-varying volatility. Our findings imply that whether financial markets are calm or distressed matters when it comes to the appropriate policy responses to uncertainty shocks.

Keywords: Uncertainty; Financial regime asymmetries; Non-linear VAR; Time-varying volatility (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 E52 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070421000379
Full text for ScienceDirect subscribers only

Related works:
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:eee:jmacro:v:69:y:2021:i:c:s0164070421000379

DOI: 10.1016/j.jmacro.2021.103331

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-02-12
Handle: RePEc:eee:jmacro:v:69:y:2021:i:c:s0164070421000379