The Nonlinear Effects of Uncertainty Shocks
Laura E. Jackson,
Kevin Kliesen () and
Michael Owyang ()
Authors registered in the RePEc Author Service: Laura Jackson Young () and
No 2018-35, Working Papers from Federal Reserve Bank of St. Louis
We consider the effects of uncertainty shocks in a nonlinear VAR that allows uncertainty to have amplification effects. When uncertainty is relatively low, fluctuations in uncertainty have small, linear effects. In periods of high uncertainty, the effect of a further increase in uncertainty is magnified. We find that uncertainty shocks in this environment have a more pronounced effect on real economic variables. We also conduct counterfactual experiments to determine the channels through which uncertainty acts. Uncertainty propagates through both the household consumption channel and through businesses delaying investment, providing substantial contributions to the decline in GDP observed after uncertainty shocks. Finally, we find evidence of the ability of systematic monetary policy to mitigate the adverse effects of uncertainty shocks.
Keywords: uncertainty; time-varying threshold VAR; monetary policy; generalized impulse response functions (search for similar items in EconPapers)
JEL-codes: C34 E2 E32 (search for similar items in EconPapers)
Date: 2018-11-16, Revised 2019-08-21
New Economics Papers: this item is included in nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-035.pdf Full text (application/pdf)
https://doi.org/10.20955/wp.2018.035 https://doi.org/10.20955/wp.2018.035 (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2018-035
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by ().