Working Paper
Uncertainty shocks, banking frictions, and economic activity
Kiel Working Papers, 1843
Authors
Publication Date
JEL Classification
E32
E52
Key Words
In this paper we investigate the effects of uncertainty shocks on economic activity using a Dynamic Stochastic General Equilibrium (DSGE) model with heterogenous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy.
