Macroeconomic Uncertainty and Vector Autoregressions

Mario Forni, Luca Gambetti and Luca Sala

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: We estimate macroeconomic uncertainty and the effects of uncertainty shocks by means of a new procedure based on standard VARs. Under suitable assumptions, our procedure is equivalent to using the square of the VAR forecast error as an external instrument in a proxy SVAR. We add orthogonality constraints to the standard proxy SVAR identification scheme. We also derive a VAR-based measure of uncertainty. 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.

Keywords: Uncertainty shocks; OLS estimation; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Pages: pages 37
Date: 2020-12
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-mac and nep-ore
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Related works:
Working Paper: Macroeconomic Uncertainty and Vector Autoregressions (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:148

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