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Are Uncertainty Shocks Aggregate Demand Shocks?

Stefano Fasani () and Lorenza Rossi ()

No 148, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: This note considers the Leduc and Liu (JME, 2016) model and studies the effects of their uncertainty shock under different Taylor-types rules. It shows that both the responses of real and nominal variables highly depend on the Taylor rule considered. Remarkably,in?flation reacts positively so that uncertainty shocks look more like supply shocks, once an empirically plausible degree of interest rate smoothness is taken into account. This result is reinforced with less reactive monetary rules. Overall, these rules bring about a less severe recession.

Keywords: Uncertainty Shocks; DSGE Model; Search and Matching frictions; Taylor rules; In?flation Dynamics (search for similar items in EconPapers)
JEL-codes: E12 E21 E22 E24 E31 C32 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2018-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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