Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263512 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15296
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
By using a nonlinear VAR model, we investigate whether the response of the US stock and housing markets to uncertainty shocks depends on financial conditions. Our model allows us to change the response of the US financial markets to volatility shocks in periods of normal and financial distress. We find strong evidence that uncertainty shocks have adverse effects on the US financial markets, irrespective of financial conditions. Moreover, our empirical results show that the rebound in US housing prices, which fell sharply in the economic turmoil, is state-dependent. This reflects the Fed's expansionary monetary policy to stabilize the US housing market. Furthermore, our findings reveal that economic agents who closely monitor the impact of uncertainty on the US stock and housing markets should also consider financial frictions in the US economy.
Subjects: 
asset prices
economic uncertainty
financial conditions
regime switching
US
JEL: 
C32
E32
E44
G01
G12
R31
Document Type: 
Working Paper

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