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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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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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