Uncertainty and Monetary Policy in Good and Bad Times: A Replication of the VAR Investigation by Bloom (2009)
16 Pages Posted: 17 Aug 2020
Date Written: August 14, 2020
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
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