Department of Economics and Business Economics

Uncertainty shocks and the great recession: Nonlinearities matter

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Uncertainty shocks and the great recession : Nonlinearities matter. / Caggiano, Giovanni; Castelnuovo, Efrem; Pellegrino, Giovanni.

In: Economics Letters, Vol. 198, 109669, 01.2021.

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Caggiano, Giovanni ; Castelnuovo, Efrem ; Pellegrino, Giovanni. / Uncertainty shocks and the great recession : Nonlinearities matter. In: Economics Letters. 2021 ; Vol. 198.

Bibtex

@article{fad44b5b3b05423880699cc0f347c24d,
title = "Uncertainty shocks and the great recession: Nonlinearities matter",
abstract = "We show that a nonlinear DSGE framework estimated on moments (impulse responses) specific to the great recession implies a peak response of the cyclical component of output to an uncertainty shock 50% larger than the one predicted by the very same model estimated on moments implied by a standard linear VAR. As an implication, the DSGE framework estimated on impulse responses generated with the nonlinear VAR assigns to the 2008Q4 uncertainty shock a contribution of about 60% as regards the output loss experienced by the US economy during and after the great recession. The same DSGE framework estimated by matching the impulse responses of the linear VAR severely underestimates such contribution.",
keywords = "Great recession, Minimum-distance estimation, Nonlinear DSGE framework, Nonlinear IVAR, Uncertainty shock",
author = "Giovanni Caggiano and Efrem Castelnuovo and Giovanni Pellegrino",
note = "Funding Information: We thank Pierre-Daniel Sarte (Editor) and an anonymous referee for useful comments. Financial support by the ARC, Australia via the Discovery Grants DP160102281 and DP160102654 is gratefully acknowledged. Publisher Copyright: {\textcopyright} 2020 Elsevier B.V. Copyright: Copyright 2020 Elsevier B.V., All rights reserved.",
year = "2021",
month = jan,
doi = "10.1016/j.econlet.2020.109669",
language = "English",
volume = "198",
journal = "Economics Letters",
issn = "0165-1765",
publisher = "Elsevier BV",

}

RIS

TY - JOUR

T1 - Uncertainty shocks and the great recession

T2 - Nonlinearities matter

AU - Caggiano, Giovanni

AU - Castelnuovo, Efrem

AU - Pellegrino, Giovanni

N1 - Funding Information: We thank Pierre-Daniel Sarte (Editor) and an anonymous referee for useful comments. Financial support by the ARC, Australia via the Discovery Grants DP160102281 and DP160102654 is gratefully acknowledged. Publisher Copyright: © 2020 Elsevier B.V. Copyright: Copyright 2020 Elsevier B.V., All rights reserved.

PY - 2021/1

Y1 - 2021/1

N2 - We show that a nonlinear DSGE framework estimated on moments (impulse responses) specific to the great recession implies a peak response of the cyclical component of output to an uncertainty shock 50% larger than the one predicted by the very same model estimated on moments implied by a standard linear VAR. As an implication, the DSGE framework estimated on impulse responses generated with the nonlinear VAR assigns to the 2008Q4 uncertainty shock a contribution of about 60% as regards the output loss experienced by the US economy during and after the great recession. The same DSGE framework estimated by matching the impulse responses of the linear VAR severely underestimates such contribution.

AB - We show that a nonlinear DSGE framework estimated on moments (impulse responses) specific to the great recession implies a peak response of the cyclical component of output to an uncertainty shock 50% larger than the one predicted by the very same model estimated on moments implied by a standard linear VAR. As an implication, the DSGE framework estimated on impulse responses generated with the nonlinear VAR assigns to the 2008Q4 uncertainty shock a contribution of about 60% as regards the output loss experienced by the US economy during and after the great recession. The same DSGE framework estimated by matching the impulse responses of the linear VAR severely underestimates such contribution.

KW - Great recession

KW - Minimum-distance estimation

KW - Nonlinear DSGE framework

KW - Nonlinear IVAR

KW - Uncertainty shock

UR - http://www.scopus.com/inward/record.url?scp=85097743995&partnerID=8YFLogxK

U2 - 10.1016/j.econlet.2020.109669

DO - 10.1016/j.econlet.2020.109669

M3 - Journal article

AN - SCOPUS:85097743995

VL - 198

JO - Economics Letters

JF - Economics Letters

SN - 0165-1765

M1 - 109669

ER -