Discussion paper

DP15692 Macroeconomic Uncertainty and Vector Autoregressions

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.


Forni, M, L Gambetti and L Sala (2021), ‘DP15692 Macroeconomic Uncertainty and Vector Autoregressions‘, CEPR Discussion Paper No. 15692. CEPR Press, Paris & London. https://cepr.org/publications/dp15692