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Financial Regulation Policy Uncertainty and Credit Spreads in the U.S

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  • Gabriela Nodari

    () (University of Verona)

Abstract

This paper quantifies the macroeconomic effects of surprise movements in uncertainty about financial regulation policies in the U.S. economy. Within the context of a Structural VAR model, exogenous variations in financial regulation policy uncertainty lead to a widening in corporate credit spreads, and can potentially trigger flight to quality and flight to liquidity episodes. Financial regulation policy uncertainty shocks also induce a strong and persistent reduction of industrial production, an increase in unemployment and a deflationary phase, acting as negative demand shocks. A variance decomposition analysis underlines the contribution of the shock for the dynamics of the macro observables. These findings are supported by a variety of robustness checks.

Suggested Citation

  • Gabriela Nodari, 2013. "Financial Regulation Policy Uncertainty and Credit Spreads in the U.S," "Marco Fanno" Working Papers 0170, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0170
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    Cited by:

    1. Caggiano, Giovanni & Castelnuovo, Efrem & Groshenny, Nicolas, 2014. "Uncertainty shocks and unemployment dynamics in U.S. recessions," Journal of Monetary Economics, Elsevier, vol. 67(C), pages 78-92.
    2. 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".
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    4. Caggiano, Giovanni & Castelnuovo, Efrem & Pellegrino, Giovanni, 2017. "Estimating the real effects of uncertainty shocks at the Zero Lower Bound," European Economic Review, Elsevier, vol. 100(C), pages 257-272.
    5. Amélie Charles & Olivier Darné & Fabien Tripier, 2018. "Uncertainty and the Macroeconomy: Evidence from an uncertainty composite indicator," Post-Print hal-01757042, HAL.
    6. repec:bla:ecinqu:v:55:y:2017:i:2:p:843-877 is not listed on IDEAS
    7. Castelnuovo, Efrem & Tran, Trung Duc, 2017. "Google It Up! A Google Trends-based Uncertainty index for the United States and Australia," Economics Letters, Elsevier, vol. 161(C), pages 149-153.
    8. Tsai, I-Chun, 2017. "The source of global stock market risk: A viewpoint of economic policy uncertainty," Economic Modelling, Elsevier, vol. 60(C), pages 122-131.
    9. Amélie Charles & Olivier Darné & Fabien Tripier, 2017. "Uncertainty and the Macroeconomy: Evidence from an Uncertainty Composite Indicator," Working Papers 2017-25, CEPII research center.
    10. Sergey Egiev, 2016. "On Persistence of Uncertainty Shocks," HSE Working papers WP BRP 144/EC/2016, National Research University Higher School of Economics.
    11. Netšunajev, Aleksei & Glass, Katharina, 2017. "Uncertainty and employment dynamics in the euro area and the US," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 48-62.
    12. Steffen R. Henzel & Malte Rengel, 2017. "Dimensions Of Macroeconomic Uncertainty: A Common Factor Analysis," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 843-877, April.
    13. Caggiano, Giovanni & Castelnuovo, Efrem & Figueres, Juan Manuel, 2017. "Economic policy uncertainty and unemployment in the United States: A nonlinear approach," Economics Letters, Elsevier, vol. 151(C), pages 31-34.
    14. Prüser, Jan & Schlösser, Alexander, 2017. "The effects of economic policy uncertainty on European economies: Evidence from a TVP-FAVAR," Ruhr Economic Papers 708, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    15. Christian Pierdzioch & Rangan Gupta, 2017. "Uncertainty and Forecasts of U.S. Recessions," Working Papers 201732, University of Pretoria, Department of Economics.
    16. Md Rafayet Alam, 2015. "Economic policy uncertainty in the US: Does it matter for Canada?," Economics Bulletin, AccessEcon, vol. 35(4), pages 2725-2732.
    17. repec:eee:asieco:v:51:y:2017:i:c:p:1-11 is not listed on IDEAS
    18. Choi, Sangyup & Loungani, Prakash, 2015. "Uncertainty and unemployment: The effects of aggregate and sectoral channels," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 344-358.
    19. Michael Donadelli, 2015. "Google search-based metrics, policy-related uncertainty and macroeconomic conditions," Applied Economics Letters, Taylor & Francis Journals, vol. 22(10), pages 801-807, July.
    20. M. E. Bontempi & R. Golinelli & M. Squadrani, 2016. "A New Index of Uncertainty Based on Internet Searches: A Friend or Foe of Other Indicators?," Working Papers wp1062, Dipartimento Scienze Economiche, Universita' di Bologna.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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