Department of Economics and Business Economics

Uncertainty and monetary policy during the great recession

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  • Giovanni Pellegrino
  • Efrem Castelnuovo, University of Padova
  • ,
  • Giovanni Caggiano, University of Padova, Monash University

We employ a nonlinear proxy-VAR approach to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the Great Recession. We replicate this evidence with an estimated DSGE framework that we employ to quantify the output loss due to the large uncertainty shock that materialized in 2008Q4. We find such a shock to be able to explain about 60% of the output loss in the 2008–2014 period. Our model also points to the powerful role played by the Federal Reserve's systematic monetary policy in limiting the loss of output during the Great Recession.

Original languageEnglish
JournalInternational Economic Review
Pages (from-to)577-606
Number of pages30
Publication statusPublished - May 2023

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