A Markov-switching model to characterize the impact of financial uncertainty shocks in different monetary policy regimes

We estimate different MS-SBVARs with U.S. data from 1978 to 2015 and we adopt a final model with two variance regimes and two monetary policy regimes: The variance regimes capture periods of high or low uncertainty of the system. The monetary policy regimes are hawkish or dovish. The hawkish regime captures mainly the Volcker mandate, in which the conduct of monetary policy followed the dynamics of inflation, whereas the dovish regime is active under Greenspan and Bernanke, when the central banker focused mainly on real activity. Financial uncertainty shocks are deflationary, provoking a fall in output. Agents misprediction about future inflation is temporary. In the hawkish regime, the interest rate does not respond, whereas an accommodative behaviour characterizes the reaction in the dovish regime.