Confidence and the transmission of macroeconomic uncertainty in U.S. recessions
Year: 2016
Type: article
Abstract: This article studies the role of confidence in the transmission of uncertainty shocks during U.S. recessions. I use smooth-transition vector-autoregression (ST-VAR) to examine the regime-dependent effect of uncertainty shocks, and a counterfactual decomposition to isolate the role of confidence when the economy is in different regimes, recessions and non-recessions. I find that shutting down the confidence channel leads to greatly dampened and less persistent effects of uncertainty shocks, especially during recessions. I also find that the cross-regime difference in the role of confidence can largely explain the cross-regime short-run difference in the effects of uncertainty shocks.
Source: Applied Economics
Author: Fang Zhang
Institution: California State University, Fullerton
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3124673249