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Uncertainty shocks, banking frictions and economic activity

Dario Bonciani () and Björn van Roye

No 1825, Working Paper Series from European Central Bank

Abstract: In this paper we investigate the effects of uncertainty shocks on economic activity in the euro area by using a Dynamic Stochastic General Equilibrium (DSGE) model with heterogeneous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy. JEL Classification: E32, E52

Keywords: financial frictions; Perturbation Methods; stochastic volatility; Third-order approximation; Uncertainty Shocks (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dge and nep-mac
Note: 2685109
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Related works:
Journal Article: Uncertainty shocks, banking frictions and economic activity (2016) Downloads
Working Paper: Uncertainty shocks, banking frictions, and economic activity (2013) Downloads
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