Giovanni Caggiano

Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound

In a joint project with Efrem Castelnuovo and Giovanni Pellegrino, Giovanni Caggiano employs a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. The researchers find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Their results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high financial stress, and to be robust to different ways of modelling unconventional monetary policy. The findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.

While visiting CESifo in July, Mr Caggiano will work on a research project related to the interaction between uncertainty and financial frictions in driving business cycle fluctuations. The researchers aim to test whether uncertainty and financial shocks have had a time-varying impact on real activity in the US. They also aim to quantify the so-called finance-uncertainty multiplier, i.e. the factor by which the presence of financial frictions in the economy magnifies the real effects of uncertainty shocks.

Giovanni Caggiano is currently Associate Professor at the Department of Economics, Monash University. He previously worked at the University of Padua, Department of Economics and Management, the University of Glasgow, Department of Economics and the University of Exeter, School of Business and Economics. He has spent research periods in various institutions, including Columbia University, University of Melbourne, Queen Mary University of London, Bank of England, Bank of Finland and the World Bank. His papers have been published in various journals including the Journal of Econometrics, Journal of Monetary Economics, Economic Journal, Journal of Applied Econometrics, Journal of Economic Dynamics and Control, Journal of Banking and Finance and the Journal of Economic History.