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Journal ArticleDOI

Economic uncertainty and the influence of monetary policy

TL;DR: In this paper, the authors explore if economic uncertainty alters the macroeconomic influence of monetary policy and find that U.S. monetary policy shocks affect economic activity less when uncertainty is high, in line with real-option effects from theory.
About: This article is published in Journal of International Money and Finance.The article was published on 2017-09-01. It has received 184 citations till now. The article focuses on the topics: Monetary policy.
Citations
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Journal ArticleDOI
TL;DR: The model shows that EPU matters most in the short run, as it reduces the growth of CO2 emissions, while prolonged use of EPU in the UK, exhibit controversial influence, whereCO2 emissions continue to rise.

194 citations

Journal ArticleDOI
TL;DR: The authors 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 and find that the contractionary effects are statistically larger when the ZLB is binding, with differences that are economically important.

171 citations


Cites background or result from "Economic uncertainty and the influe..."

  • ...Aastveit et al. (2017) quantify the real effects of monetary policy shocks in presence of high/low uncertainty....

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  • ...Aastveit et al. (2017) quantify the real effects of monetary policy shocks in presence of high/low uncertainty. With respect to these studies, our paper: (i) focuses on uncertainty shocks, and (ii) fully endogenizes the conditioning variable which determines the switch between the states of interest. From a technical standpoint, our paper is close to Pellegrino (2017a) . He studies the real effects of monetary policy shocks in the United States in presence of time-varying uncertainty by computing fully nonlinear GIRFs that admit switches between states after a shock (in his case, a monetary policy shock). A similar paper is Pellegrino (2017b) , who investigates the same research question with Euro area data....

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Journal ArticleDOI
TL;DR: In this paper, the impact of uncertainties on energy prices was explored by measuring four types of Delta conditional value-at-risk (CoVaR) using six time-varying copulas.

115 citations

01 Jan 2017
TL;DR: In this article, the authors investigate the role played by systematic monetary policy in tackling the real effects of uncertainty shocks in U.S. recessions and expansions and provide empirical and narrative evidence pointing to a risk management approach by the Federal Reserve.
Abstract: We investigate the role played by systematic monetary policy in tackling the real effects of uncertainty shocks in U.S. recessions and expansions. We model key indicators of the business cycle with a nonlinear VAR that allows for different dynamics in busts and booms. Uncertainty shocks are identified by focusing on historical events that are associated to jumps in financial volatility. Uncertainty shocks hitting in recessions are found to trigger a more abrupt drop and a faster recovery in real activity than in expansions. Counterfactual simulations suggest that the effectiveness of systematic monetary policy in stabilizing real activity is greater in expansions. Finally, we provide empirical and narrative evidence pointing to a risk management approach by the Federal Reserve.

99 citations


Cites background from "Economic uncertainty and the influe..."

  • ...…(1999), Mumtaz and Surico (2015), and Tenreyro and Thwaites (2016) - or in presence of high/low uncertainty, as Eickmeier, Metiu, and Prieto (2016), Aastveit, Natvik, and Sola (2017), Pellegrino that such measure of financial uncertainty predicts future movements in the US business cycle even when…...

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Journal ArticleDOI
TL;DR: In this article, the authors estimate a nonlinear VAR model to study the real effects of monetary policy shocks in regimes characterized by high vs. low macroeconomic uncertainty and find unexpected monetary policy moves to exert a substantially milder impact in presence of high uncertainty.

95 citations

References
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Book
01 Jan 1994
TL;DR: In this article, Dixit and Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made.
Abstract: How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending.This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.

10,879 citations

Journal ArticleDOI
TL;DR: The authors developed a new index of economic policy uncertainty based on newspaper coverage frequency and found that policy uncertainty spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt ceiling dispute and other major battles over fiscal policy.
Abstract: We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy Using firm-level data, we find that policy uncertainty raises stock price volatility and reduces investment and employment in policy-sensitive sectors like defense, healthcare, and infrastructure construction At the macro level, policy uncertainty innovations foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s

4,484 citations

Journal ArticleDOI
TL;DR: In this paper, the authors present a unified approach to impulse response analysis which can be used for both linear and nonlinear multivariate models and demonstrate the use of these measures for a nonlinear bivariate model of US output and the unemployment rate.

3,821 citations

Posted Content
TL;DR: The authors reviewed recent research that grapples with the question: What happens after an exogenous shock to monetary policy? They argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules.
Abstract: This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules. The literature has not yet converged on a particular set of assumptions for identifying the effects of an exogenous shock to monetary policy. Nevertheless, there is considerable agreement about the qualitative effects of a monetary policy shock in the sense that inference is robust across a large subset of the identification schemes that have been considered in the literature. We document the nature of this agreement as it pertains to key economic aggregates.

2,803 citations

Journal ArticleDOI
TL;DR: The authors found that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets, i.e., banks with lower ratios of securities to assets, and that this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution.
Abstract: We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets--i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a "bank lending channel" of monetary transmission, though they do not allow us to make precise statements about its quantitative importance.

2,416 citations