The Asymmetric Effects of Uncertainty Shocks

This study evaluates the effects of financial uncertainty shocks in the US, investigating
the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we
find that an uncertainty shock triggers asymmetric and negative effects across the
business cycle. The reactions of consumption and investments are state-dependent and
drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock
is from four to six times larger in recessions than in normal times. A counterfactual
exercise shows that the Balance Sheet-related monetary policy mitigates the persistence
and the magnitude of the recessionary effects of the shock.