The asymmetric effects of uncertainty shocks

Valentina Colombo and Alessia Paccagnini

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This study evaluates the effects of financial uncertainty shocks in the US, investigating the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we find that an uncertainty shock triggers asymmetric and negative effects across the business cycle. The reactions of consumption and investments are state-dependent and drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock is from four to six times larger in recessions than in normal times. A counterfactual exercise shows that the Balance Sheet-related monetary policy mitigates the persistence and the magnitude of the recessionary effects of the shock.

Keywords: Uncertainty; Smooth Transition VAR; Nonlinearities; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C50 E32 E52 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-08
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-72

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