We provide a theoretical framework, with empirical evidence, where monetary policy effects become stronger during periods of heightened uncertainty in productivity. Higher aggregate and idiosyncratic productivity volatility induce firms, which are constrained by information capacity, to allocate...

We empirically investigate how uncertainty endogenously interacts with real activity and monetary policy, and analyze the role of endogeneity in shaping the efficacy of monetary policy using a shock restricted structural vector-auto-regression model. Using the model, we show that both real and...

No. Even if firms reset their prices more frequently when they face higher uncertainty, monetary policy may not be less effective in boosting real activity when firms become less responsive to monetary policy. In this case, the real effect of monetary policy can be strengthened even though they...