Adverse Selection, Uncertainty Shocks and Monetary Policy

2011 ◽  
Author(s):  
Daisuke Ikeda
Keyword(s):  
Monetary Policy ◽  
Adverse Selection ◽  
Uncertainty Shocks

scholarly journals The nonlinear effects of uncertainty shocks

2019 ◽  
Vol 24 (4) ◽  
Author(s):  
Laura E. Jackson ◽  
Kevin L. Kliesen ◽  
Michael T. Owyang
Keyword(s):  
Monetary Policy ◽  
Adverse Effects ◽  
Nonlinear Effects ◽  
Household Consumption ◽  
Pronounced Effect ◽  
Economic Variables ◽  
Uncertainty Shocks ◽  
Linear Effects ◽  
High Uncertainty

AbstractWe consider the effects of uncertainty shocks in a nonlinear VAR that allows uncertainty to have amplification effects. When uncertainty is relatively low, fluctuations in uncertainty have small, linear effects. In periods of high uncertainty, the effect of a further increase in uncertainty is magnified. We find that uncertainty shocks in this environment have a more pronounced effect on real economic variables. We also conduct counterfactual experiments to determine the channels through which uncertainty acts. Uncertainty propagates through both the household consumption channel and through businesses delaying investment, providing substantial contributions to the decline in GDP observed after uncertainty shocks. Finally, we find evidence of the ability of systematic monetary policy to mitigate the adverse effects of uncertainty shocks.

scholarly journals ADVERSE SELECTION, SEGMENTED MARKETS, AND THE ROLE OF MONETARY POLICY

2011 ◽  
Vol 15 (S2) ◽  
pp. 269-292 ◽  
Author(s):  
Daniel Sanches ◽  
Stephen Williamson
Keyword(s):  
Monetary Policy ◽  
Adverse Selection ◽  
Policy Intervention ◽  
Full Information ◽  
Informational Frictions ◽  
Friedman Rule ◽  
Segmented Markets ◽  
Wide Range ◽  
Trading Partners

A model is constructed in which trading partners are asymmetrically informed about future trading opportunities and spatial and informational frictions limit arbitrage between markets. These frictions create inefficiency relative to a full-information equilibrium, and the extent of this inefficiency is affected by monetary policy. A Friedman rule is optimal under a wide range of circumstances, including ones where segmented markets limit the extent of monetary policy intervention.

scholarly journals Uncertainty, Financial Markets, and Monetary Policy over the Last Century

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Sangyup Choi ◽  
Chansik Yoon
Keyword(s):  
Monetary Policy ◽  
Lower Bound ◽  
Minor Role ◽  
Zero Lower Bound ◽  
Financial Shocks ◽  
Financial Variables ◽  
Uncertainty Shocks ◽  
Financial Conditions ◽  
Negative Effect ◽  
A Minor

Abstract What has been the effect of uncertainty shocks in the U.S. economy over the last century? What are the roles of the financial channel and monetary policy channel in propagating uncertainty shocks? Our empirical strategies enable us to distinguish between the effects of uncertainty shocks on key macroeconomic and financial variables transmitted through each channel. A hundred years of data further allow us to answer these questions from a novel historical perspective. This paper finds robust evidence that financial conditions captured by both borrowing costs and the availability of credit have played a crucial role in propagating uncertainty shocks over the last century. However, heightened uncertainty does not necessarily amplify the adverse effect of financial shocks, suggesting an asymmetric interaction between uncertainty and financial shocks. Interestingly, the monetary policy stance seems to play only a minor role in propagating uncertainty shocks, which is in sharp contrast to the recent claim that binding zero-lower-bound amplifies the negative effect of uncertainty shocks. We argue that the contribution of constrained monetary policy to amplifying uncertainty shocks is largely masked by the joint concurrence of binding zero-lower-bound and tightened financial conditions.

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