NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Macroeconomic Impact of Financial and Uncertainty Shocks

Dario Caldara, Cristina Fuentes-Albero, Simon Gilchrist, Egon Zakrajšek

NBER Working Paper No. 22058
Issued in March 2016
NBER Program(s):EFG, ME

The extraordinary events surrounding the Great Recession have cast a considerable doubt on the traditional sources of macroeconomic instability. In their place, economists have singled out financial and uncertainty shocks as potentially important drivers of economic fluctuations. Empirically distinguishing between these two types of shocks, however, is difficult because increases in economic uncertainty are strongly associated with a widening of credit spreads, an indication of a tightening in financial conditions. This paper uses the penalty function approach within the SVAR framework to examine the interaction between financial conditions and economic uncertainty and to trace out the impact of these two types of shocks on the economy. The results indicate that (1) financial shocks have a significant adverse effect on economic outcomes and that such shocks were an important source of cyclical fluctuations since the mid-1980s; (2) uncertainty shocks, especially those implied by uncertainty proxies that do not rely on financial asset prices, are also an important source of macroeconomic disturbances; and (3) uncertainty shocks have an especially negative economic impact in situations where they elicit a concomitant tightening of financial conditions. Evidence suggests that the Great Recession was likely an acute manifestation of the toxic interaction between uncertainty and financial shocks.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22058

Published: Dario Caldara & Cristina Fuentes-Albero & Simon Gilchrist & Egon Zakrajšek, 2016. "The macroeconomic impact of financial and uncertainty shocks," European Economic Review, vol (). citation courtesy of

Users who downloaded this paper also downloaded* these:
Bordo and Meissner w22059 Fiscal and Financial Crises
Eggertsson, Mehrotra, and Summers w22172 Secular Stagnation in the Open Economy
Diamond and Kashyap w22053 Liquidity Requirements, Liquidity Choice and Financial Stability
Gilchrist, Sim, and Zakrajšek w20038 Uncertainty, Financial Frictions, and Investment Dynamics
Gorton and Tallman w22064 Too-Big-To-Fail Before the Fed
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us