Nonlinear Effects of Uncertainty Shocks: State-dependency and Asymmetry

Hiroshi Morita and Shiro Yuasa

No DP22-6, RCESR Discussion Paper Series from Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University

Abstract: The nonlinear effects of uncertainty shocks on U.S. macroeconomic activity are examined using a smooth transition VAR model in which the dynamic relationship between the variables changes with the level of economic policy uncertainty. We find that the responses of the variables change with the level of uncertainty, and in particular, the sign of the response of the inflation rate reverses. The empirical evidence suggests that the behaviors of the shifts in aggregate demand and aggregate supply functions induced by uncertainty shocks depend on the current uncertainty level.

Keywords: Uncertainty shocks; Nonlinear dynamics; VAR model (search for similar items in EconPapers)
JEL-codes: C32 D80 E32 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2022-12
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Persistent link: https://EconPapers.repec.org/RePEc:hit:rcesrs:dp22-6

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