Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

56 Pages Posted: 17 Jan 2017

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Efrem Castelnuovo

University of Melbourne - Department of Economics

Giovanni Pellegrino

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Multiple version iconThere are 3 versions of this paper

Date Written: January 13, 2017

Abstract

We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high financial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.

Keywords: Uncertainty shocks, Nonlinear Structural Vector AutoRegressions, Interacted VAR, Generalized Impulse Response Functions, Zero Lower Bound

JEL Classification: C32, E32

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Pellegrino, Giovanni, Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound (January 13, 2017). Melbourne Institute Working Paper No. 1/17. Available at SSRN: https://ssrn.com/abstract=2899899 or http://dx.doi.org/10.2139/ssrn.2899899

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padua ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Efrem Castelnuovo (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Giovanni Pellegrino

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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