Financial Uncertainty And Real Activity

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Financial Uncertainty And Real Activity

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Author : Giovanni Caggiano
language : en
Publisher:
Release Date : 2020

Financial Uncertainty And Real Activity written by Giovanni Caggiano and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020 with categories.

This paper quantifies the finance uncertainty multiplier (i.e., the magnifying effect of the real impact of uncertainty shocks due to financial frictions) by relying on two historical events related to the US economy, i.e., the large jump in financial uncertainty occurred in October 1987 (which was not accompanied by a deterioration of the credit supply conditions), and the comparable jump in financial uncertainty in September 2008 (which went hand-in-hand with an increase in financial stress). Working with a VAR framework and a set-identification strategy which focuses on - but it is not limited to - restrictions related to these two dates, we estimate the finance uncertainty multiplier to be equal to 2, i.e., credit supply disruptions are found to double the negative output response to an uncertainty shock. We then employ our model to estimate the overall economic cost of the COVID-19-induced uncertainty shock under different scenarios. Our results point to the possibility of a cumulative yearly loss of industrial production as large as 31% if credit supply gets disrupted. Liquidity interventions that keep credit conditions as healthy as they were before the COVID-19 uncertainty shock are found to substantially reduce such loss.

Financial Markets The Real Economy And Self Fulfilling Uncertainties

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Author : Jess Benhabib
language : en
Publisher:
Release Date : 2018

Financial Markets The Real Economy And Self Fulfilling Uncertainties written by Jess Benhabib and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.

Uncertainty in both financial markets and the real economy rises sharply during recessions. We develop a model of informational interdependence between financial markets and the real economy, linking uncertainty to information production and aggregate economic activities. We argue that there exists mutual learning between financial markets and the real economy. Their joint information productions determine both the allocative efficiency in the real sector and the market efficiency in the financial sector. The mutual learning creates a strategic complementarity between information production in the financial sector and that in the real sector. A self-fulfilling surge in financial uncertainty and real uncertainty can naturally arise when both sectors produce little information in anticipation of the other producing little information. At the same time, aggregate output falls as the real allocative efficiency deteriorates. In the extension to an OLG dynamic setting, our model characterizes self-fulfilling uncertainty traps with two steady-state equilibria and a two-stage economic crisis in transitional dynamics.

Yield Curve And Financial Uncertainty

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Author : Efrem Castelnuovo
language : en
Publisher:
Release Date : 2019

Yield Curve And Financial Uncertainty written by Efrem Castelnuovo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

How do short and long term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962-2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short and long term interest rates. The response of the short end of the yield curve (i.e., of short term interest rates) is found to be stronger than that of the long end (i.e., of long term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock.

Essays On Financial Market Volatility And Real Economic Activity

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Author : Sang Yup Choi
language : en
Publisher:
Release Date : 2015

Essays On Financial Market Volatility And Real Economic Activity written by Sang Yup Choi and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

This dissertation studies how financial market volatility or uncertainty in the U.S. economy affects real economic activity both in the U.S. and other open economies. Chapter 1 critically examines a stylized fact about the effects of uncertainty shocks on the U.S. economy. A link between uncertainty and firms' investment, hiring, and production decisions has drawn much attention in contemporary discussions after the 2008 financial crisis. Bloom (2009) showed that uncertainty events, identified by spikes in stock market volatility, triggered immediate falls in output and employment, followed by rapid rebounds. I show that such stock market volatility shocks failed to produce this same pattern of responses after 1983. Chapter 2 studies the effects of risk aversion shocks, measured by increases in the VIX, on emerging market economies (EMEs). By estimating a structural vector autoregression (VAR) model, I find that, although risk aversion shocks do not have much impact on U.S. output, they do have a noticeable impact on the output of EMEs. To explain the contrast between the impact of risk appetite shocks on EMEs and the impact on the U.S. economy, a credit channel is proposed as a propagation mechanism. In the model, an increase in the VIX is translated to a risk-aversion shock that generates a "flight to quality." As international investors pull their money from EMEs, borrowing costs increase and domestic credit falls as a consequence of credit market imperfections. Higher borrowing costs, in turn, lead to a fall in investment that causes a real depreciation and a decline in total output through sectoral linkages. Finally, Chapter 3, which is co-authored with Prakash Loungani, studies the effect of uncertainty shocks on unemployment dynamics by separating out the role of aggregate and sectoral channels. Using SP500 data from the first quarter of 1963 through the third quarter of 2014, we construct a separate index to measure sectoral uncertainty and compare its effects on the unemployment rate with that of aggregate uncertainty in a standard VAR model, augmented by a local projection method. We find that aggregate uncertainty shocks lead to an immediate increase in unemployment, followed by swift reversals. In contrast, sectoral uncertainty shocks have a long-lasting impact on unemployment, with the peak impact occurring after two years. Our findings highlight an additional channel through which uncertainty shocks have persistent effects on unemployment by requiring substantial inter-industry labor reallocation.

Economic Uncertainty And Financial Structure

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Author : Alexander Thomas K. Grant
language : en
Publisher: Springer
Release Date : 1977-06-17

Economic Uncertainty And Financial Structure written by Alexander Thomas K. Grant and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 1977-06-17 with Business & Economics categories.

Four Essays On Real Activity And Financial Markets

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Author : Hesna Genay
language : en
Publisher:
Release Date : 1995

Four Essays On Real Activity And Financial Markets written by Hesna Genay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995 with Dividends categories.

Surprise And Uncertainty Indexes

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Author : Chiara Scotti
language : en
Publisher:
Release Date : 2017

Surprise And Uncertainty Indexes written by Chiara Scotti and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.

I construct two daily, real-time, real activity indexes for the United States, Euro area, the United Kingdom, Canada, and Japan: (i) a surprise index that summarizes recent economic data surprises and measures optimism/pessimism about the state of the economy, and (ii) an uncertainty index that measures uncertainty related to the state of the economy. The surprise index preserves the properties of the underlying series in affecting asset prices, with the advantage of being a parsimonious summary measure of real-activity surprises. For the United States, the real-activity uncertainty index is compared to other proxies commonly used to measure uncertainty to show that when uncertainty is strictly related to real activity, it has a potentially milder impact on economic activity than when it also relates to the financial sector.

Foreign Economic Policy Uncertainty Shocks And Real Activity In The Euro Area

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Author : Filippo Arigoni
language : en
Publisher:
Release Date : 2023

Foreign Economic Policy Uncertainty Shocks And Real Activity In The Euro Area written by Filippo Arigoni and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.

Financial Stress Uncertainty And Economic Activity

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Author : Björn van Roye
language : en
Publisher:
Release Date : 2013

Financial Stress Uncertainty And Economic Activity written by Björn van Roye and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

Keynes On Monetary Policy Finance And Uncertainty

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Author : Jorg Bibow
language : en
Publisher: Routledge
Release Date : 2013-03-01

Keynes On Monetary Policy Finance And Uncertainty written by Jorg Bibow and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-03-01 with Business & Economics categories.

This book provides a reassessment of Keynes’ theory of liquidity preference. It argues that the failure of the Keynesian revolution to be made in either theory or practice owes importantly to the fact that the role of liquidity preference theory as a pivotal element in Keynes’ General Theory has remained underexplored and indeed widely misunderstood even among Keynes’ followers and until today. The book elaborates on and extends Keynes’ conceptual framework, moving it from the closed economy to the global economy context, and applies liquidity preference theory to current events and prominent hypotheses in global finance. Jörg Bibow presents Keynes’ liquidity preference theory as a distinctive and highly relevant approach to monetary theory offering a conceptual framework of general applicability for explaining the role and functioning of the financial system. He argues that, in a dynamic context, liquidity preference theory may best be understood as a theory of financial intermediation. Through applications to current events and prominent hypotheses in global finance, this book underlines the richness, continued relevance, and superiority of Keynes’ theory of liquidity preference; with Hyman Minsky standing out for developing Keynes’ vision of financial capitalism.