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Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

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  • Efrem Castelnuovo

    () (University of Padova)

  • Giovanni Caggiano

    () (University of Padova)

  • Giovanni Pellegrino

    () (University of Verona)

Abstract

We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. Our results show that the contractionary effects of uncertainty shocks are statistically larger when the ZLB is binding, with differences that are economically important. Such differences are shown not to be driven by the contemporaneous occurrence of the Great Recession. These fi?ndings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.

Suggested Citation

  • Efrem Castelnuovo & Giovanni Caggiano & Giovanni Pellegrino, 2015. "Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound," "Marco Fanno" Working Papers 0200, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0200
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    Keywords

    Uncertainty shocks; Nonlinear Structural Vector AutoRegressions; Interacted VAR; Generalized Impulse Response Functions; Zero Lower Bound.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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