Estimating the real effects of uncertainty shocks at the Zero Lower Bound

Giovanni Caggiano, Efrem Castelnuovo, Giovanni Pellegrino

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We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high financial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.

Original languageEnglish
Pages (from-to)257-272
Number of pages16
JournalEuropean Economic Review
Publication statusPublished - 1 Nov 2017


  • Generalized Impulse Response Functions
  • Interacted VAR
  • Nonlinear structural Vector AutoRegressions
  • Uncertainty shocks
  • Zero Lower Bound

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