NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Monetary Policy Uncertainty and Economic Fluctuations

Drew D. Creal, Jing Cynthia Wu

NBER Working Paper No. 20594
Issued in October 2014, Revised in December 2016
NBER Program(s):The Monetary Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w20594

Published: Drew D. Creal & Jing Cynthia Wu, 2017. "MONETARY POLICY UNCERTAINTY AND ECONOMIC FLUCTUATIONS," International Economic Review, vol 58(4), pages 1317-1354. citation courtesy of

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