Working Paper

Uncertainty shocks, banking frictions, and economic activity

Authors

  • Dario Bonciani
  • Björn van Roye
Publication Date

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.

Info

JEL Classification
E32, E52

Key Words

  • financial frictions
  • monetary policy
  • Perturbation Methods
  • stochastic volatility
  • Third-order approximation
  • Uncertainty Shocks