Uncertainty and monetary policy in good and bad times: A replication of the vector autoregressive investigation by Bloom (2009)

This paper revisits the well-known vector autoregressive (VAR) evidence on the real effects of uncertainty shocks by Bloom (2009, ). We replicate the results in a narrow sense using EViews. In a wide sense, we extend his study by working with a smooth transition VAR framework that allows for business cycle-dependent macroeconomic responses to an uncertainty shock. We find a significantly stronger response of real activity in recessions. Counterfactual simulations point to a greater effectiveness of systematic monetary policy in stabilizing real activity in expansions.