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Title: Uncertainty and financial stability: A VAR analysis Authors:  Dario Caldara - Board of Governors (United States)
Chiara Scotti - Board of Governors of the Federal Reserve System (United States) [presenting]
Molin Zhong - Board of Governors of teh Federal Reserve System (United States)
Abstract: The aim is to study the relative importance of three shocks for macroeconomic and financial conditions: real, financial and uncertainty shocks. We find that shocks to financial uncertainty play a supplementary role in addition to real and financial shocks, and lead to a deterioration of the macroeconomic and financial outlook. Asset valuations in equities, corporate markets, and real estate decline. Businesses and households increase their savings and start a long-lasting process of deleveraging. The supply of credit to the economy retrenches, with underwriting standards tightening especially for commercial real estate and commercial and industrial loans. The financial sector experiences a deleveraging in banks, and a buildup of leverage in other nonfinancial institutions.