Economics at your fingertips  

Deflationary financial shocks and inflationary uncertainty shocks: an SVAR Investigation

Roberto A. De Santis and Wouter Van der Veken

No 2727, Working Paper Series from European Central Bank

Abstract: What are the economic implications of financial and uncertainty shocks? We show that financial shocks cause a decline in output and goods prices, while uncertainty shocks cause a decline in output and an increase in goods prices. In response to un-certainty shocks, firms increase their markups, in line with the theory of self-insurance against being stuck with too low a price. This explains why goods prices may increase at the onset of a recession and are not accompanied by pronounced deflationary pressures. The two shocks are identified jointly with an approach that is less restrictive than Antolín-Díaz and Rubio-Ramírez’s method. JEL Classification: C32, E32

Keywords: Business cycles; narrative identification; SVAR; uncertainty shocks; financial shocks (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-fdg and nep-ifn
Note: 185689
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().

Page updated 2023-06-15
Handle: RePEc:ecb:ecbwps:20222727