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The asymmetric effects of uncertainty shocks

Author

Listed:
  • Valentina Colombo
  • Alessia Paccagnini

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.

Suggested Citation

  • Valentina Colombo & Alessia Paccagnini, 2020. "The asymmetric effects of uncertainty shocks," CAMA Working Papers 2020-72, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2020-72
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2020-08/72_2020_colombo_paccagnini_0.pdf
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    Citations

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    Cited by:

    1. Min Fang, 2021. "Lumpy Investment, Fluctuations in Volatility and Monetary Policy," Working Papers 002001, University of Florida, Department of Economics.
    2. Giovanni Pellegrino & Federico Ravenna & Gabriel Züllig, 2021. "The Impact of Pessimistic Expectations on the Effects of COVID‐19‐Induced Uncertainty in the Euro Area," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(4), pages 841-869, August.
    3. Valentin Jouvanceau, 2023. "Consumer price rigidity in periods of low and high inflation: the case of Lithuania," Bank of Lithuania Discussion Paper Series 34, Bank of Lithuania.

    More about this item

    Keywords

    Uncertainty; Smooth Transition VAR; Nonlinearities; Monetary Policy;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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