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 |
JEL(s): | C32, E32 |
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.