Switching volatility in a nonlinear open economy

Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial in euro area highlights effect of foreign shocks. Estimating open-economy nonlinear dynamic stochastic general equilibrium model for and United States including Markov-switching volatility shocks, we show that these shocks were significant during compared with periods calm. We describe how US from both real economy markets affected bond reallocation occurred between short- long-term maturities Importantly, estimated nonlinearities when domestic influence economy, should not be neglected. The behavior market-related variables importance higher-order estimation providing additional interpretations to policymakers.