Uncertainty and Monetary Policy in Good and Bad Times: A Replication of the VAR Investigation by Bloom (2009)

Abstract

This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks by

Uncertainty Shocks, Adjustment Costs and Firm Beliefs: Evidence From a Representative Survey

“…The time profile of the managers' predicted investment, employment and production effects in response to the uncertainty shock fits surprisingly well the profile of impulse responses obtained from a VAR model (as, for instance, in Jurado, Ludvigson and Ng, 2015 as well as Basu and Bundick, 2017). Similar to Bachmann, Elstner and Sims (2013), Jurado, Ludvigson and Ng (2015), and Basu and Bundick (2017) but in contrast to the results of Bloom (2009) and Caggiano, Castelnuovo and Nodari (2020), we do not find evidence that real activity overshoots after its initial decline, at least not within the first two years.…”

Uncertainty before and during COVID‐19: A survey

“…( 2017a ), Chatterjee ( 2019a ), Colombo and Paccagnini ( 2021 ), and Caggiano et al. ( 2022 ) find that the effects of uncertainty shocks are stronger when an economy is already in a low‐growth state. This might be due to the fact that recessions are associated with a tightening of financial conditions (Alessandri & Mumtaz, 2019 ) or an increase in uncertainty (Jackson et al., 2018 ).…”

Uncertainty and monetary policy in the US: A journey into nonlinear territory

“…Other related recent empirical works are Eickmeier et al (2016), Castelnuovo and Pellegrino (2018) and Caggiano et al (2021). The aim of the first two studies is to investigate more structurally through the New-Keynesian framework how uncertainty influences the effectiveness of monetary policy shocks.…”

“…With respect to their conditionally‐linear Threshold VAR frameworks, this study endogenizes uncertainty and shows how important it is for the estimation of the effects of monetary policy shocks. Caggiano et al (2021) estimate a smooth‐transition VAR (STVAR) model to investigate the stabilizing role of systematic monetary policy in presence of heightened uncertainty during recessions and expansions. Our work is complementary to theirs, in that it focuses on the effects of monetary policy shocks conditional on different levels of uncertainty 10…”