Uncertainty matters: evidence from a high-frequency identification strategy

Piergiorgio Alessandri, Andrea Giovanni Gazzani and Alejandro Vicondoa

No 1284, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Assessing the role of uncertainty shocks as a driver of business cycle fluctuations is challenging because spikes in uncertainty often coincide with news about economic fundamentals. To tackle this problem, we exploit daily data to identify uncertainty shocks that (i) impact the VXO volatility index, and (ii) are statistically independent from level shocks affecting stock prices. We then use the identified series of uncertainty shocks in a monthly VAR to estimate their macroeconomic effects on the US economy. An exogenous increase in uncertainty depresses economic activity and prices, significantly affecting both labor and capital goods markets. Uncertainty shocks account for about 20% of the cyclical fluctuations in employment and industrial production.

Keywords: uncertainty shocks; high-frequency identification; SVAR; business cycle; mutual funds; mutual funds performance; distribution networks; conflict of interest (search for similar items in EconPapers)
JEL-codes: C32 C36 E32 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-mac and nep-ore
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1284_20

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