Uncertainty and monetary policy in good and bad times: A Replication of the VAR investigation by Bloom (2009)

Vol: 
74/2020
Author name: 
Caggiano G
Castelnuovo E
Nodari G
Year: 
2020
Month: 
August
Abstract: 

This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks by Bloom (Econometrica 2009(3): 623-685. doi: 10.3982/ECTA6248). We replicate the results in a narrow sense using Eviews. In a wide sense, we extend his study by working with a smooth transition-VAR framework that allows for business cycle-dependent macroeconomic responses to an uncertainty shock. We find a significantly stronger response of real activity in recessions. Counterfactual simulations point to a greater effectiveness of systematic monetary policy in stabilizing real activity in expansions.

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