Policy risk and the business cycle

Benjamin Born and Johannes Pfeifer

Journal of Monetary Economics, 2014, vol. 68, issue C, 68-85

Abstract: The argument that uncertainty about monetary and fiscal policy has been holding back the recovery in the U.S. during the Great Recession has a large popular appeal. This paper uses an estimated New Keynesian model to analyze the role of policy risk in explaining business cycles. We directly measure risk from aggregate data and find a moderate amount of time-varying policy risk. The “pure uncertainty” effect of this policy risk is unlikely to play a major role in business cycle fluctuations. In the estimated model, output effects are relatively small because policy risk shocks are (i) too small and (ii) not sufficiently amplified.

Keywords: Policy risk; Uncertainty; Aggregate fluctuations; Particle filter; Nominal rigidities (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (300)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393214001184
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Policy Risk and the Business Cycle (2013)
Working Paper: Policy Risk and the Business Cycle (2011)
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:moneco:v:68:y:2014:i:c:p:68-85

DOI: 10.1016/j.jmoneco.2014.07.012

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

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