Harald Uhlig | Macro Paper Warehouse

Interbank Rate Uncertainty and Bank Lending

Thu, 01 Jan 2026 00:00:00 +0000

This paper asks whether uncertainty in the interbank market — distinct from general macroeconomic uncertainty — raises the cost of bank credit to firms, and whether bank-specific characteristics buffer or amplify this transmission. The question matters because interbank market disruptions were a central feature of both the 2007–2009 global financial crisis and the 2010–2012 European sovereign debt crisis, yet the empirical channel linking interbank stress to retail lending conditions had not been quantified at the individual-bank level.

Money Markets, Collateral and Monetary Policy

The paper studies the euro area interbank money markets during the global financial crisis (2007–09) and sovereign debt crisis (2010–15), documenting four empirical regularities and building a quantitative general equilibrium model to evaluate their macroeconomic impact and the role of central bank policy. The central finding is that the ECB’s collateral policy — lending to banks at haircuts more favorable than private markets — prevented output and investment from falling roughly twice as much as they would have under a passive constant-balance-sheet policy.

Some Fiscal Calculus

This short paper computes government-spending and tax-cut “fiscal multipliers” in a baseline neoclassical growth model with endogenous labor supply, government transfers, government debt, and distortionary taxes on labor and capital income, calibrated using Trabandt and Uhlig (2009) and simulated at quarterly frequency. Holding transfers, consumption taxes, and capital-income taxes fixed, the model requires that any increase in the fiscal deficit eventually be repaid through increases in the distortionary labor tax, at a deliberately slow repayment speed. Feeding the model a government-spending path modeled on the 2009 American Recovery and Reinvestment Act (rising to roughly 1.78 percent of steady-state output at its peak six quarters in, per Cogan et al., forthcoming), the author finds that the short-run net-present-value multiplier for government spending is initially well above one, driven entirely by a real-business-cycle wealth effect: the anticipated future tax increases needed to finance the spending make the representative household poorer, so it substitutes away from leisure into labor, raising output even absent any Keynesian demand channel. But because the spending increase is financed by debt that must eventually be repaid through higher labor taxes, this apparent success reverses over longer horizons: the paper reports a persistent, decades-long below-trend path for output as the higher labor tax distorts labor supply, and the net-present-value government-spending multiplier eventually turns negative, converging to roughly -3.4 (that is, $3.40 of output is ultimately lost, in present-value terms, for every dollar of government spending). By contrast, a comparable tax cut – financed the same way, through the same debt-and-repayment structure – converges to a net-present-value multiplier of roughly +2.4. The paper is explicit that this is a positive, not a normative, exercise: it reports only aggregate output paths for a representative agent, and the author notes that a heterogeneous-agent version of the same model, in which agents differ in capital holdings and preferences over public goods, would in general generate very different welfare conclusions across the population than the representative-agent output path can show. The author’s stated purpose is not to argue against fiscal stimulus on welfare grounds but to insist that the long-run financing costs of debt-financed spending “ought to receive more and sufficient attention” in stimulus debates, which he argues are otherwise “severely incomplete.”

What are the effects of monetary policy on output? Results from an agnostic identification procedure

This 2005 Journal of Monetary Economics paper by Harald Uhlig proposes an “agnostic” sign-restriction procedure for identifying monetary policy shocks in a VAR, designed to test rather than assume the conventional view that a contractionary shock lowers real output. Using a monthly six-variable VAR for the United States (real GDP, GDP deflator, a commodity price index, total reserves, nonborrowed reserves, and the federal funds rate, January 1965-December 2003, 12 lags as in Bernanke and Mihov), Uhlig defines a contractionary policy shock as an impulse vector for which, over a benchmark horizon of K=5 months (six months after the shock), the GDP deflator, the commodity price index, and nonborrowed reserves do not rise and the federal funds rate does not fall – while leaving the response of real GDP completely unrestricted. Any impulse vector consistent with a given reduced-form VAR’s covariance matrix can be written as a linear combination of the Cholesky factor’s columns (Appendix A), so the sign restrictions are imposed via a Bayesian procedure that draws candidate impulse vectors from a Normal-Wishart posterior and keeps only those satisfying the restrictions (the “pure-sign-restriction” approach), with a “penalty-function” alternative that instead selects, for every posterior draw, the vector minimizing a penalty for sign violations (Appendix B). The central finding is that once GDP is left free, contractionary monetary policy shocks have an ambiguous effect on real output – moving it up or down by up to about 0.2% with two-thirds probability – and account for perhaps 5-10% (and possibly under 3%) of real GDP’s forecast-error variance at any horizon, versus the roughly 50% implied by a standard Cholesky ordering, which also generates a price puzzle that the sign-restriction approach avoids by construction. Uhlig traces the conventional finding that output falls to a single additional, and in his view spurious, restriction implicit in recursive (Cholesky) orderings – that GDP not respond on impact – and shows that adding that one restriction back in (while the agnostic restrictions alone leave the deflator- or GDP-widened bands compatible with no output effect at all) is what manufactures the textbook contractionary-output result. A penalty-function version of the exercise gives qualitatively similar but somewhat sharper (more precisely estimated, slightly larger-magnitude) results, and is described as more sensitive to the choice of restriction horizon K than the pure-sign-restriction approach.