Are Uncertainty Shocks Aggregate Demand Shocks?

This note considers the Leduc and Liu (JME, 2016) model and studies the
effects of their uncertainty shock under different Taylor-type rules. It shows that
both the responses of real and nominal variables highly depend on the Taylor rule
considered. Remarkably, inflation reacts positively so that uncertainty shocks look
more like negative supply shocks, once an empirically plausible degree of interest
rate smoothing is taken into account. This result is reinforced with less reactive
monetary rules. Overall, these rules alleviate the recession.