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Uncertainty shocks, banking frictions, and economic activity

  • Dario Bonciani
  • Björn van Roye

In this paper we investigate the effects of uncertainty shocks on economic activity 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 banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy

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File URL: https://www.ifw-members.ifw-kiel.de/publications/uncertainty-shocks-banking-frictions-and-economic-activity/Kiel%20Working%20Paper%201843.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1843.

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Length: 44 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:kie:kieliw:1843
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  1. Cesa-Bianchi, Ambrogio & Fernandez-Corugedo, Emilio, 2014. "Uncertainty in a model with credit frictions," Bank of England working papers 496, Bank of England.
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  18. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August.
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  20. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-68, November.
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  24. Sylvain Leduc & Zheng Liu, 2012. "Uncertainty shocks are aggregate demand shocks," Working Paper Series 2012-10, Federal Reserve Bank of San Francisco.
  25. Tommaso Monacelli & Ester Faia, 2005. "Optimal Interest Rate Rules, Asset Prices and Credit Frictions," Computing in Economics and Finance 2005 452, Society for Computational Economics.
  26. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
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  28. Lan, Hong & Meyer-Gohde, Alexander, 2013. "Solving DSGE models with a nonlinear moving average," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2643-2667.
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