Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212379 
Year of Publication: 
2017
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 8/2017
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We investigate the role played by systematic monetary policy in tackling the real effects of uncertainty shocks in U.S. recessions and expansions. We model key indicators of the business cycle with a nonlinear VAR that allows for different dynamics in busts and booms. Uncertainty shocks are identi ed by focusing on historical events that are associated to jumps in nancial volatility. Uncertainty shocks hitting in recessions are found to trigger a more abrupt drop and a faster recovery in real activity than in expansions. Counterfactual simulations suggest that the effectiveness of systematic monetary policy in stabilizing real activity is greater in expansions. Finally, we provide empirical and narrative evidence pointing to a risk management approach by the Federal Reserve.
JEL: 
C32
E32
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-158-0
Document Type: 
Working Paper

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