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Macroeconomic Effects of Financial Uncertainty

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  • Grzegorz Długoszek

    (Humboldt-Universität zu Berlin)

Abstract

This paper investigates the macroeconomic effects of uncertainty originating in the financial sector by using the DSGE framework developed by Gertler and Karadi (2011). The model generates macroeconomic dynamics that are consistent with the empirical evidence. In particular, an increase in the financial uncertainty raises the risk premium and leads to a decline in output, consumption, investment and hours worked. This outcome arises mainly because of an endogenous tightening of the financial constraint, which in turn triggers the financial accelerator mechanism. Finally, nominal and real rigidities act as additional amplification mechanisms for financial uncertainty shocks.

Suggested Citation

  • Grzegorz Długoszek, 2018. "Macroeconomic Effects of Financial Uncertainty," 2018 Meeting Papers 1128, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1128
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    References listed on IDEAS

    as
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    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
    • 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
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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