Uncertainty and monetary policy in good and bad times: A Replication of the VAR investigation by Bloom (2009)

This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks
by Bloom (Econometrica 2009(3): 623-685. doi: 10.3982/ECTA6248). We replicate the
results in a narrow sense using Eviews. In a wide sense, we extend his study by working
with a smooth transition-VAR framework that allows for business cycle-dependent
macroeconomic responses to an uncertainty shock. We find a significantly stronger
response of real activity in recessions. Counterfactual simulations point to a greater
effectiveness of systematic monetary policy in stabilizing real activity in expansions.