For monetary policy, a trade-off between exchange rate flexibility and the possibility to run an autonomous monetary policy is not obvious for small open economies ( Klein & Shambaugh, 2008). This is particularly complicated if erroneous past policy choices put a brake on fiscal policy's intertemporal smoothing if fiscal space is limited. Moreover, policy-makers might have trouble to stabilize the cycle if external finance suddenly dries up. Firms are forced to cut back on investment as the financial system withdraws credit lines.
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Recent advances in DSGE modeling techniques show how uncertainty – modeled as a rise in conditional volatility – can be an important driver of the business cycle, especially in combination with other frictions that create some rigidity (see Fernández-Villaverde, Guerron-Quintana, Rubio-Ramirez, & Uribe, 2011).Įmerging economies may endure even stronger and prolonged recessions following a global uncertainty shock, as credit constraints in shallow financial markets trigger stronger responses. Investors drop projects if they feel that tighter financial constraints make investment temporarily too costly to start up. Uncertainty also induces risk-averse agents to ask higher risk premia as they fear probabilities of default go up ( Arellano, Bai, & Kehoe, 2010 Gilchrist, Sim, & Zakrajšek, 2014). “Wait and see” behavior makes agents subject to fixed costs or partial irreversibilities so they keep consumption and investment decisions on hold, only to resume decision taking once the uncertainty is resolved ( Bernanke, 1983). Spells of uncertainty on economic or political events are argued to be responsible for rapid boom-bust patterns in economic activity. La política monetaria amortigua mejor los efectos de la incertidumbre cuanto existe un tipo de cambio fijo, en comparación a los regímenes de tipo flotante. La política fiscal es una alternativa, pero únicamente si existe suficiente espacio fiscal para suavizar los choques. El principal hallazgo es que los mercados financieros más desarrollados son esenciales para amortiguar la transmisión del choque. Los mercados emergentes sufren mayores caídas de consumo e inversión a medida que se expande la incertidumbre a nivel global. A continuación se estima un VAR de panel interactuado para un amplio conjunto de economías desarrolladas y emergentes durante el periodo 1990Q1-2014Q3, con el propósito de probar las respuestas a los choques a la incertidumbre. (2015) – en el que se extrae un factor común no impulsado por el ciclo económico, de un conjunto amplio de indicadores de pronóstico. El presente estudio utiliza un indicador novedoso de la incertidumbre – inspirado en Jurado et al. Las respuestas de política activas exacerban a menudo el ciclo. Las economías emergentes pueden padecer las recesiones más fuertes y prolongadas que se producen tras un choque de incertidumbre global, en la medida en que las restricciones al crédito en los mercados financieros superficiales limitan el suavizamiento. Los comportamientos de «esperar y ver» y de aversión al riesgo, junto con otras fricciones, pueden originar que los periodos de incremento de la incertidumbre se conviertan en impulsores importantes del ciclo económico. Se argumenta que los episodios de incertidumbre causan caídas aceleradas de la actividad económica. Monetary policy dampens the effects of uncertainty under a fixed peg better than in a floating exchange rate regime. Fiscal policy is an alternative, but only if there is sufficient fiscal space to smooth shocks. The main finding is that more developed financial markets are key to dampen the transmission of the shock. Emerging markets suffer a larger fall in consumption and investment as uncertainty spreads globally. I then estimate an interacted panel VAR on a large set of developed and emerging economies over the period 1990Q1-2014Q3 to test responses to shocks to uncertainty. (2015) – in which I extract a common factor that is not driven by the business cycle from a broad set of forecast indicators. The present study uses a novel proxy of uncertainty – inspired on Jurado et al. Active policy responses often exacerbate the cycle. Emerging economies may endure even stronger and prolonged recessions following a global uncertainty shock, as credit constraints in shallow financial markets limit smoothing. Wait and see behavior and risk aversion in combination with other frictions can make periods of increased uncertainty an important driver of the business cycle. Spells of uncertainty are argued to cause rapid drops in economic activity.
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