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

57 Pages Posted: 7 Feb 2017 Last revised: 13 Dec 2017

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padova

Efrem Castelnuovo

University of Melbourne - Department of Economics; University of Padova - Department of Economics

Giovanni Pellegrino

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 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 (February 1, 2017). Bank of Finland Research Discussion Paper No. 6/2017, Available at SSRN: https://ssrn.com/abstract=2911800

Giovanni Caggiano (Contact Author)

Department of Economics, Monash University ( email )

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Caulfield East, Victoria 3145
Australia

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

University of Padova ( email )

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Padova, Vicenza 35122
Italy

Efrem Castelnuovo

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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

University of Padova - Department of Economics

via Del Santo 33
Padova, 35123
Italy

Giovanni Pellegrino

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

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

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