Seminario di Giovanni Pellegrino

22.11.2016

Seminario di Giovanni Pellegrino, University of Melbourne

Uncertainty and Monetary Policy in the US: A Journey into Non-Linear Territory

This paper estimates a non-linear Interacted VAR model in order to assess whether the real effects of monetary policy shocks are lower during times of high uncertainty. In a novel way, uncertainty, i.e., the conditioning indicator discriminating "high" from "low" uncertainty states, is modeled endogenously in the VAR and is found to reduce after an expansionary shock. Generalized Impulse Response Functions à la Koop, Pesaran and Potter (1996) suggest that monetary
policy shocks are significantly less effective during uncertain times, with the peak reactions of a battery of real variables being about two-thirds milder than those during tranquil times. We also assess which among the theoretical explanations proposed by the literature is supported by our results.