Understanding the Aggregate Effects of Credit Frictions and Uncertainty: Additional Results
86 Pages Posted: 15 Jun 2017
Date Written: June 12, 2017
This paper integrates a financial accelerator mechanism à la Bernanke et al. (1999) and time-varying uncertainty into a medium-scale Dynamic New Keynesian model. In our model, uncertainty emerges from monetary policy (policy uncertainty) as well as from financial risks (micro uncertainty) and the aggregate state of the economy (macro uncertainty). We describe the time-variant policy, micro and macro uncertainty using a stochastic volatility model. We use this framework to identify how uncertainty propagates and its interplay with financial frictions. We also investigate how uncertainty affects the propagation of other shocks (TFP, monetary policy shocks).
Keywords: Stochastic Volatility, Uncertainty, Financial Accelerator, Perturbation Methods
JEL Classification: E32, E44, D8, C32
Suggested Citation: Suggested Citation