Essays in Empirical Macroeconomics

This PhD thesis consists of three chapters that investigate the dynamic interactions among monetary policy, macroeconomic uncertainty, and the business cycle. Chapter 1 focuses on the origins of a particular type of uncertainty, namely macroeconomic downside risk. This concept captures the “worst-case scenario” for the macroeconomy, proxied by the probability that output growth falls below a selected quantile of its predictive density over a given horizon. I investigate the role of monetary policy in shaping downside risk, allowing for non-linear dynamics that differ across recessions and expansions. The results indicate that monetary easing during economic slowdowns reduces downside risk by roughly twice the magnitude by which monetary tightening during booms increases it. This conclusion remains robust even when considering monetary contractions during highly leveraged expansions. To obtain this evidence, I construct downside risk indicators as linear combinations of relevant quantiles of the conditional forecast density of output growth and recover generalized state-dependent impulse responses to structural shocks using a novel econometric framework. This framework combines structural VAR methods with quantile regressions, both adapted to incorporate smooth-transition parameters. Structural monetary policy shocks are identified using a high-frequency external instrument. Chapter 2 addresses the broader challenge of identifying credible causal relations between monetary policy and the business cycle in multivariate time series models that depart from linearity. Building on the first chapter, I explore how structural shocks can be identified via an external instrument when modeling economic relations using a reduced-form smooth-transition VAR, which features state dependence in both the first and second moments. I argue that this identification requires additional assumptions relative to the linear benchmark, and show that these assumptions can materially affect estimates of impulse response functions. Empirically, I find that monetary policy shocks have stronger effects during recessions than during expansions, but this result depends on allowing the relevance of the external instrument (i.e., the covariance between the instrument and reduced-form VAR residuals) to vary in a state-dependent manner, rather than assuming it is constant. Chapter 3, co-authored with Enrico Bergamini (ESADE Business School), investigates a different type of uncertainty - economic policy uncertainty (EPU) - and its interaction with the business cycle. Specifically, we analyze how countryspecific EPU shocks propagate across major European economies (France, Ger- 1 many, Italy, Spain). Using a multi-country BVAR and identifying countryspecific shocks through a generalized max-share approach in the frequency domain, we document substantial cross-border spillovers. These spillovers occur across multiple channels, including policy uncertainty, real activity, and financial markets, and their magnitude varies depending on the origin of the shock and the recipient country. Overall, our evidence highlights that EPU is an important driver of business cycle fluctuations in Europe, both domestically and across borders. Additionally, we extend this analysis through a historical investigation. We construct novel historical EPU series for EU countries, effectively doubling the length of available proxies. Departing again from linear assumptions, we estimate a threshold-VAR model to show that domestic EPU responses to foreign uncertainty shocks have increased alongside EU political integration.