The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR Approach

Andrea Carriero, Haroon Mumtaz, Konstantinos Theodoridis and Angeliki Theophilopoulou

Journal of Money, Credit and Banking, 2015, vol. 47, issue 6, 1223-1238

Abstract: A growing literature considers the impact of uncertainty using SVAR models that include proxies for uncertainty shocks as endogenous variables. In this paper, we consider the impact of measurement error in these proxies on the estimated impulse responses. We show via a Monte Carlo experiment that measurement error can result in attenuation bias in impulse responses. In contrast, the proxy SVAR that uses the uncertainty shock proxy as an instrument does not suffer from this bias. Applying this latter method to the Bloom (2009) data set results in impulse responses to uncertainty shocks that are larger in magnitude and more persistent than those obtained from a recursive SVAR.

Date: 2015
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Citations: View citations in EconPapers (104)

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https://doi.org/10.1111/jmcb.12243

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Working Paper: The Impact of Uncertainty Shocks under Measurement Error. A Proxy SVAR Approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:47:y:2015:i:6:p:1223-1238

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