Asymmetric Effects of Uncertainty over the Business Cycle: A Quantile Structural Vector Autoregressive Approach

Yves Schüler

No 2014-02, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: This paper proposes to relate conditional quantiles of stationary macroeconomic time series to the different phases of the business cycle. Based on this idea, I introduce a Bayesian Quantile Structural Vector Autoregressive framework for the analysis of the effects of uncertainty on the US real economy. For this purpose, I define a novel representation of the multivariate Laplace distribution that allows for the joint treatment of multiple equation regression quantiles. I find significant evidence for asymmetric effects of uncertainty over the US business cycle. The strongest negative effects are revealed during recession periods. During boom phases uncertainty shocks improve the soundness of the economy. Moreover, the phase of the financial sector matters when the real economy is at recession but not if the economy is at boom. When the financial system is in a bad state, an uncertainty shock leads to a deeper recession than in times when the financial system is in a good state.

Keywords: Uncertainty; Economic Cycles; Quantile SVAR; Multivariate Laplace (search for similar items in EconPapers)
JEL-codes: C32 E44 G01 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-01-27
New Economics Papers: this item is included in nep-ecm and nep-mac
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Citations: View citations in EconPapers (20)

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