Monetary Policy Uncertainty and Economic Fluctuations

Drew Creal and Jing Cynthia Wu

No 20594, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the relationship between uncertainty about monetary policy and its transmission mechanism, and economic fluctuations. We propose a new term structure model where the second moments of macroeconomic variables and yields can have a first-order effect on their dynamics. The data favors a model with two unspanned volatility factors that capture uncertainty about monetary policy and the term premium. Uncertainty contributes negatively to economic activity. Two dimensions of uncertainty react in opposite directions to a shock to the real economy, and the response of inflation to uncertainty shocks vary across different historical episodes.

JEL-codes: C5 E4 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (4)

Published as Drew D. Creal & Jing Cynthia Wu, 2017. "MONETARY POLICY UNCERTAINTY AND ECONOMIC FLUCTUATIONS," International Economic Review, vol 58(4), pages 1317-1354.

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