Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269134 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2727
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
What are the economic implications of financial and uncertainty shocks? We show that financial shocks cause a decline in output and goods prices, while uncertainty shocks cause a decline in output and an increase in goods prices. In response to uncertainty shocks, firms increase their markups, in line with the theory of self-insurance against being stuck with too low a price. This explains why goods prices may increase at the onset of a recession and are not accompanied by pronounced deflationary pressures. The two shocks are identified jointly with an approach that is less restrictive than Antolín-Díaz and Rubio-Ramírez's method.
Subjects: 
Business cycles
financial shocks
uncertainty shocks
SVAR
narrative identification
JEL: 
C32
E32
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5314-6
Document Type: 
Working Paper

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