DP15692 Macroeconomic Uncertainty and Vector Autoregressions
|Author(s):||Mario Forni, Luca Gambetti, Luca Sala|
|Publication Date:||January 2021|
|Date Revised:||January 2021|
|Keyword(s):||OLS estimation, stochastic volatility, Uncertainty shocks, VAR models|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15692|
We estimate measures of macroeconomic uncertainty and compute the effects of uncertainty shocks by means of a new simple procedure based on standard VARs. Uncertainty and its effects are estimated using a single model so to ensure internal consistency. Under suitable assumptions, our procedure is equivalent to using the square of the VAR forecast error as an external instrument in a proxy SVAR. Our procedure allows to add orthogonality constraints to the standard proxy SVAR identification scheme. We apply our method to a US data set; we find that uncertainty is mainly exogenous and is responsible of a large fraction of business-cycle fluctuations.