Monetary Policy Uncertainty and Economic Fluctuations

Download or read book Monetary Policy Uncertainty and Economic Fluctuations written by Drew Creal and published by . This book was released on 2016 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the relationship between uncertainty about monetary policy and its transmission mechanism, and economic fluctuations. We propose a new term structure model where the second moments of macroeconomic variables and yields can have a first-order effect on their dynamics. The data favors a model with two unspanned volatility factors that capture uncertainty about monetary policy and the term premium. Uncertainty contributes negatively to economic activity. Two dimensions of uncertainty react in opposite directions to a shock to the real economy, and the response of inflation to uncertainty shocks vary across different historical episodes.