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Uncertainty shocks, banking frictions and economic activity

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  • Bonciani, Dario
  • Roye, Björn van

Abstract

In this paper we investigate the effects of uncertainty shocks on economic activity in the euro area by using a Dynamic Stochastic General Equilibrium (DSGE) model with heterogenous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in bank loan rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy.

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  • Bonciani, Dario & Roye, Björn van, 2016. "Uncertainty shocks, banking frictions and economic activity," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 200-219.
    • Handle: RePEc:eee:dyncon:v:73:y:2016:i:c:p:200-219
    DOI: 10.1016/j.jedc.2016.09.008
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    More about this item

    Keywords

    Uncertainty Shocks; Financial frictions; Stochastic Volatility; Perturbation Methods; Third-order approximation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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