Uncertainty and Monetary Policy in Good and Bad Times: A Replication of the VAR Investigation by Bloom (2009)

16 Pages Posted: 17 Aug 2020

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

Gabriela Nodari

Reserve Bank of Australia

Multiple version iconThere are 2 versions of this paper

Date Written: August 14, 2020

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.

Keywords: Uncertainty shocks, nonlinear Smooth Transition Vector AutoRegressions, Generalized Impulse Response Functions, systematic monetary policy

JEL Classification: C32, E32

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Nodari, Gabriela, Uncertainty and Monetary Policy in Good and Bad Times: A Replication of the VAR Investigation by Bloom (2009) (August 14, 2020). CAMA Working Paper No. 74/2020, Available at SSRN: https://ssrn.com/abstract=3673644 or http://dx.doi.org/10.2139/ssrn.3673644

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 Padova ( 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

University of Padova - Department of Economics

via Del Santo 33
Padova, 35123
Italy

Gabriela Nodari

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000
Australia

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