Uncertainty shocks and the great recession: Nonlinearities matter

We show that a nonlinear DSGE framework estimated on moments (impulse responses) specific to the great recession implies peak response of cyclical component output an uncertainty shock 50% larger than one predicted by very same model implied standard linear VAR. As implication, impulse responses generated with VAR assigns 2008Q4 contribution about 60% as regards loss experienced US economy during and after recession. The matching severely underestimates such contribution.