The Zero Lower Bound and Endogenous Uncertainty
Michael Plante (),
Alexander Richter () and
Economic Journal, 2018, vol. 128, issue 611, 1730-1757
This article examines the correlation between uncertainty and real GDP growth. We use the volatility of real GDP growth from a VAR, stock market volatility, surveyâ€ based forecast dispersion and macro uncertainty index as proxies for uncertainty. In each case, a stronger negative correlation emerged in 2008. We contend the zero lower bound (ZLB) on the federal funds rate contributed to our finding. To test our theory, we estimate a New Keynesian model with a ZLB constraint to generate a dataâ€ driven, forwardâ€ looking uncertainty measure. The correlations between that measure and real GDP growth are close to the values in the data.
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Working Paper: The zero lower bound and endogenous uncertainty (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:128:y:2018:i:611:p:1730-1757
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