Uncertainty and the macroeconomy
Title: Uncertainty and the macroeconomy
Author: BONCIANI, Dario
Citation: Florence : European University Institute, 2018
Series/Number: EUI PhD theses; Department of Economics
In this thesis, I study from various angles how uncertainty a ects macroeconomic activity. Chapter 1 investigates the e ects of uncertainty shocks on economic activity in the euro area by means of a Dynamic Stochastic General Equilibrium (DSGE) model with heterogenous agents and a stylized banking sector. We show that frictions in credit supply amplify the e ects of uncertainty shocks on economic activity. This ampli - cation channel stems mainly from the stickiness in bank loan rates. This stickiness reduces the e ectiveness in the transmission mechanism of monetary policy. In chapter 2, I provide empirical evidence that uncertainty shocks have strong asymmetric e ects on economic activity depending on the phase of the business cycle. In particular, the impulse responses estimated with the local projection method on a smooth-transition model show that in recessions uncertainty shocks strongly dampen economic activity. In an expansion, the e ects are reversed, and uncertainty shocks have positive macroeconomic e ects. One possible explanation is that during expansions uncertainty fosters investments and economic activity through the "growth options" channel, while in recessions it reduces investments via the "wait-and-see" channel. In chapter 3, I show that shocks to macroeconomic uncertainty negatively a ect economic activity both in the short- and in the long-run. In a New Keynesian model with endogenous-growth through investment in R&D, volatility shocks have negative e ects in the short-term because of precautionary savings, lower propensity to undertake risky investments and rising markups, and in the long-run because of the fall in R&D investment. The presence of long-run uctuations in consumption makes agents more risk-averse, which strongly ampli es the e ects of uncertainty shocks.
Table of Contents:
-- 1. Uncertainty shocks, Banking Frictions and Economic Activity -- 2. Estimating the Effects of Uncertainty over the Business Cycle -- 3. The Long-Run Effects of Uncertainty Shocks
Defence date: 1 June 2018; Examining Board: Prof. Juan Dolado, EUI, Supervisor ; Prof. Evi Pappa, EUI ; Prof. Francesco Furnaletto, Norges Bank ; Prof. Konstantinos Theodoridis, Cardiff Business School
Type of Access: openAccess
Preceding version: http://hdl.handle.net/1814/55484
Version: Chapter 1 ‘Uncertainty shocks, Banking Frictions and Economic Activity' of the PhD thesis draws upon an earlier version published as an article ' Uncertainty shocks, banking frictions and economic activity' (2016) in the 'Journal of economic dynamics and control'.