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Uncertainty shocks, banking frictions and economic activity

  Author: Dario Bonciani, Björn van Roye ( European Central Bank )
 July, 2015
  Price: FREE


In this paper we investigate the effects of uncertainty shocks on economic activity in the euro area by using a Dynamic Stochastic General Equilibrium (DSGE) model with heterogenous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary

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