Kiel Working Papers, Kiel Institute for World Economics
No 1843:
Uncertainty shocks, banking frictions, and economic activity
Dario Bonciani and Björn van Roye
Abstract: In this paper we investigate the effects of uncertainty
shocks on economic activity using a Dynamic Stochastic General Equilibrium
(DSGE) model with heterogenous agents and a stylized banking sector. We
show that frictions in credit supply amplify the effects of uncertainty
shocks on economic activity. This amplification channel stems mainly from
the stickiness in banking retail interest rates. This stickiness reduces
the effectiveness in the transmission mechanism of monetary policy
Keywords: Uncertainty Shocks, Financial frictions, Monetary Policy, Stochastic Volatility, Perturbation Methods, Third-order approximation; (follow links to similar papers)
JEL-Codes: E32,; E52; (follow links to similar papers)
44 pages, June 2013
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