Arbeitspapier

Financial regimes and uncertainty shocks

Financial markets are central to the transmission of uncertainty shocks. This paper documents a new aspect of the interaction between the two by showing that uncertainty shocks have radically different macroeconomic implications depending on the state financial markets are in when they occur. Using monthly US data, we estimate a nonlinear VAR where economic uncertainty is proxied by the (unobserved) volatility of the structural shocks, and a regime change occurs whenever credit conditions cross a critical threshold. An exogenous increase in uncertainty has recessionary effects in both good and bad credit regimes, but its impact on output is estimated to be five times larger when the economy is experiencing financial distress. Accounting for this nonlinearity, uncertainty accounts for about 1% of the peak fall in industrial production observed in the 2007-2009 recession.

Sprache
Englisch

Erschienen in
Series: Working Paper ; No. 729

Klassifikation
Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Thema
Uncertainty
Stochastic volatility
Financial markets
Threshold VAR

Ereignis
Geistige Schöpfung
(wer)
Alessandri, Piergiorgio
Mumtaz, Haroon
Ereignis
Veröffentlichung
(wer)
Queen Mary University of London, School of Economics and Finance
(wo)
London
(wann)
2014

Handle
Letzte Aktualisierung
10.03.2025, 11:44 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Alessandri, Piergiorgio
  • Mumtaz, Haroon
  • Queen Mary University of London, School of Economics and Finance

Entstanden

  • 2014

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