The real effects of financial uncertainty shocks: A daily identification approach

Piergiorgio Alessandri, Andrea Giovanni Gazzani and Alejandro Vicondoa

No 61, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: Isolating financial uncertainty shocks is difficult because financial markets rapidly price changes in several economic fundamentals. To bypass this difficulty, we identify uncertainty shocks using daily data and use their monthly averages as an instrument in a VAR. We show that this novel approach is theoretically appealing and has dramatic implications for leading empirical studies on financial uncertainty. Daily interactions between equity returns, bond spreads and expected volatility cause previous identification schemes to fail at the monthly frequency. Once these interactions are explicitly modeled, the impact of uncertainty shocks on output and inflation is significant and similar across specifications.

Keywords: uncertainty; shocks; financial; shocks; structural; vector; autoregression; high-frequency; identification; external; instruments (search for similar items in EconPapers)
JEL-codes: C32 C36 E32 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2021-04
New Economics Papers: this item is included in nep-cwa, nep-ecm, nep-ets, nep-fdg and nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Real Effects of Financial Uncertainty Shocks: A Daily Identification Approach (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:61

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