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Financial regimes and uncertainty shocks

Piergiorgio Alessandri and Haroon Mumtaz

Journal of Monetary Economics, 2019, vol. 101, issue C, 31-46

Abstract: Credit markets are an important link in the propagation of economic uncertainty. We study the nexus between the two using a nonlinear VAR where uncertainty is captured by the volatility of the economy’s structural shocks and its transmission mechanism is allowed to change in periods of financial distress. We find that, in the USA, uncertainty shocks have recessionary effects at all times, but their impact on output is six times larger when the economy is going through a financial crisis. Uncertainty accounts for one percentage point of the contraction in industrial production observed in the Great Recession.

Keywords: Uncertainty; Stochastic volatility; Financial markets; Threshold VARs (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 G01 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Financial regimes and uncertainty shocks (2014) Downloads
Working Paper: Financial Regimes and Uncertainty Shocks (2014) Downloads
Working Paper: Financial Regimes and Uncertainty Shocks (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:101:y:2019:i:c:p:31-46

DOI: 10.1016/j.jmoneco.2018.05.001

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