Uncertainty and the Real Effects of Monetary Policy Shocks in the Euro Area

Melbourne Institute Working Paper No. 15/17

Date: 2017

Author(s):

Giovanni Pellegrino

Abstract

This paper estimates a nonlinear Interacted-VAR model to investigate whether the effectiveness of monetary policy shocks in the Euro area is influenced by the level of European uncertainty. Generalized Impulse Response Functions à la Koop et al. (1996) suggest that the peak and cumulative effects of monetary policy shocks are lower during uncertain times than during tranquil times, and significantly so once times of very high and very low uncertainty are considered.