CEF.UP – ECO Seminar/Webinar

Tuesday – June 4^th, 2024, at 1:00 p.m. | Room 305| Online

“Uncertainty shocks in monetary unions: The case for a nominal anchor”

Benjamin Born  –  Frankfurt School of Finance & Management (Germany)

Abstract:

“Uncertainty shocks contract economic activity and arguably more so if monetary policy cannot cushion their effect. Yet, as we employ a Bayesian VAR model to identify and contrast the effects of country-specific and common uncertainty shocks on the countries in the euro area, we find that countryspecific shocks have milder effects—even though they are not accommodated by monetary policy. We rationalize this result in a two-country model of a monetary union and find that union membership provides a nominal anchor for the price level, thereby dampening the “markup channel” through which the adverse effects of uncertainty shocks unfold.”