Uncertainty and Monetary Policy During the Great Recession

Uncertainty before and during COVID‐19: A survey

“…This result is confirmed by simulations conducted by Pellegrino et al. ( 2022 ) in a model estimated to replicate the recessionary effects induced by the large jump in uncertainty materialized in the United States during the Great Recession. Cho et al.…”

“…They show that the effects of uncertainty shocks are in line with those documented by the empirical papers cited above. Pellegrino et al (2022) work with a nonlinear Interacted VAR à la Pellegrino (2018Pellegrino ( , 2021 and a narrative identification strategy to estimate the effects uncertainty shocks during the Great Recession. They find them to be substantially larger than in normal times, and interpret this fact via an estimated nonlinear DSGE model in which risk aversion is large (for related contributions, see Bretscher et al (2018) and Caggiano et al (2021b)).…”

Uncertainty, Skewness, and the Business Cycle Through the Midas Lens

“…As anticipated in our Introduction, recent theoretical contributions have put forth mechanisms that lead to a skewed response of real activity to an uncertainty shock (Cacciatore andRavenna (2021), Caggiano, Castelnuovo, andPellegrino (2017), Basu and Bundick (2017), Pellegrino, Castelnuovo, and Caggiano (2022, Jensen, Petrella, Ravn, and Santoro (2020), Andreasen, Caggiano, Castelnuovo, and Pellegrino (2021), Jovanovic andMa (2022), andBretscher, Hsu, andTamoni (2022)). It is of interest to dig deeper to understand how large a role the endogenous response of skewness plays in transmitting, and possibly magnifying, uncertainty shocks to real activity.…”

“…From a theoretical modeling standpoint, our evidence points to the need of building up frameworks featuring mechanisms that generate the type of uncertainty-skewness interaction we find in the data. Examples of such mechanisms include downward wage rigidities (Cacciatore and Ravenna (2021)), the zero lower bound (Caggiano, Castelnuovo, and Pellegrino (2017), Basu and Bundick (2017)), a combination of first and second-moment shocks (Bloom, Floetotto, Jaimovich, Saporta-Eksten, and Terry (2018)), households' high risk aversion (Caggiano, Castelnuovo, and Pellegrino (2021), Pellegrino, Castelnuovo, and Caggiano (2022), Bretscher, Hsu, and Tamoni (2022)), high firm's leverage (Jensen, Petrella, Ravn, and Santoro (2020)), firms' nominal upward pricing bias (Andreasen, Caggiano, Castelnuovo, and Pellegrino (2021)), and the rapid adoption of new technologies (Jovanovic and Ma (2022)). More in general, our findings offer support to theoretical contributions that have investigated the role of uncertainty shocks as drivers of the business cycle (Bloom (2009), Gourio (2012, Fernández-Villaverde, Guerrón-Quintana, Rubio-Ramírez, and Uribe (2011), Fernández-Villaverde, Guerrón-Quintana, Kuester, and Rubio-Ramírez (2015), Basu and Bundick (2017), and Born and Pfeifer (2021)).…”

Uncertainty and Monetary Policy During the Great Recession

“…Methodologically, we use a nonlinear interacted VAR (IVAR) model to establish novel facts regarding the different impact of financial uncertainty shocks on a battery of real activity indicators. In computing our impulse responses, we follow Pellegrino (2017, 2021), Caggiano et al. (2017), and Amendola et al.…”