The asymmetric effects of uncertainty shocks

Vol: 
72/2020
Author name: 
Colombo V
Paccagnini A
Year: 
2020
Month: 
August
Abstract: 

This study evaluates the effects of financial uncertainty shocks in the US, investigating the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we find that an uncertainty shock triggers asymmetric and negative effects across the business cycle. The reactions of consumption and investments are state-dependent and drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock is from four to six times larger in recessions than in normal times. A counterfactual exercise shows that the Balance Sheet-related monetary policy mitigates the persistence and the magnitude of the recessionary effects of the shock.

Publication file: 

Updated:  21 September 2020/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin