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Uncertainty shocks, banking frictions and economic activity

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  • Bonciani, Dario
  • van Roye, Björn

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 heterogeneous 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 banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy. JEL Classification: E32, E52

Suggested Citation

  • Bonciani, Dario & van Roye, Björn, 2015. "Uncertainty shocks, banking frictions and economic activity," Working Paper Series 1825, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20151825
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    Cited by:

    1. Nodari, Gabriela, 2014. "Financial regulation policy uncertainty and credit spreads in the US," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 122-132.
    2. Bonciani, Dario, 2015. "Estimating the effects of uncertainty over the business cycle," MPRA Paper 65921, University Library of Munich, Germany.
    3. Dlugoszek, Grzegorz, 2018. "Macroeconomic Effects of Financial Uncertainty," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181596, Verein für Socialpolitik / German Economic Association.
    4. repec:eee:ecolet:v:167:y:2018:i:c:p:142-146 is not listed on IDEAS
    5. Meinen, Philipp & Roehe, Oke, 2018. "To sign or not to sign? On the response of prices to financial and uncertainty shocks," Economics Letters, Elsevier, vol. 171(C), pages 189-192.
    6. Grimme, Christian, 2017. "Uncertainty and the Cost of Bank vs. Bond Finance," MPRA Paper 79852, University Library of Munich, Germany.
    7. repec:spr:jbuscr:v:13:y:2017:i:2:d:10.1007_s41549-017-0020-y is not listed on IDEAS
    8. repec:eee:jmacro:v:53:y:2017:i:c:p:127-144 is not listed on IDEAS
    9. Giovanni Caggiano & Efrem Castelnuovo & Gabriela Nodari, 2014. "Uncertainty and Monetary Policy in Good and Bad Times," "Marco Fanno" Working Papers 0188, Dipartimento di Scienze Economiche "Marco Fanno".
    10. Boysen-Hogrefe, Jens & Gern, Klaus-Jürgen & Groll, Dominik & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & Schwarzmüller, Tim & van Roye, Björn & Scheide, Joachim, 2014. "Finanz- und Wirtschaftspolitik bei einer anhaltenden monetären Expansion," Kieler Beiträge zur Wirtschaftspolitik 5, Kiel Institute for the World Economy (IfW).
    11. Armelius, Hanna & Hull, Isaiah & Stenbacka Köhler, Hanna, 2017. "The timing of uncertainty shocks in a small open economy," Economics Letters, Elsevier, vol. 155(C), pages 31-34.
    12. Fasani, Stefano & Rossi, Lorenza, 2018. "Are uncertainty shocks aggregate demand shocks?," Economics Letters, Elsevier, vol. 167(C), pages 142-146.
    13. Marta Martínez-Matute & Alberto Urtasun, 2018. "Uncertainty, firm heterogeneity and labour adjustments. Evidence from European countries," Working Papers 1821, Banco de España;Working Papers Homepage.
    14. Grzegorz Długoszek, 2018. "Macroeconomic Effects of Financial Uncertainty," 2018 Meeting Papers 1128, Society for Economic Dynamics.
    15. repec:spr:jbuscr:v:14:y:2018:i:1:d:10.1007_s41549-018-0024-2 is not listed on IDEAS
    16. Peter Claeys & Borek Vasicek, 2017. "Transmission of Uncertainty Shocks: Learning from Heterogeneous Responses on a Panel of EU Countries," Working Papers 2017/13, Czech National Bank, Research Department.
    17. Bonciani, Dario & Ricci, Martino, 2018. "The global effects of global risk and uncertainty," Working Paper Series 2179, European Central Bank.
    18. Anh Nguyen, 2015. "Financial frictions and the volatility of monetary policy in a DSGE model," Working Papers 75949436, Lancaster University Management School, Economics Department.
    19. Magnus Reif, 2018. "Macroeconomic Uncertainty and Forecasting Macroeconomic Aggregates," ifo Working Paper Series 265, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    20. Cesa-Bianchi, Ambrogio & Fernandez-Corugedo, Emilio, 2014. "Uncertainty in a model with credit frictions," Bank of England working papers 496, Bank of England.

    More about this item

    Keywords

    financial frictions; Perturbation Methods; stochastic volatility; Third-order approximation; Uncertainty Shocks;

    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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