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Identifying Uncertainty Shocks Using the Price of Gold

Michele Piffer and Maximilian Podstawski

No 6327, CESifo Working Paper Series from CESifo Group Munich

Abstract: We propose a new instrument to identify uncertainty shocks in a SVAR model with external instruments. The instrument is constructed by exploiting variations in the price of gold around events that capture periods of changes in uncertainty. The variations in the price of gold around the events correlate with the underlying uncertainty shocks, due to the perception of gold as a safe haven asset. To control for possible news-related effects associated with the events, we identify uncertainty and news shocks jointly, developing a set-identified proxy SVAR with restrictions on the correlations between shocks and proxies. We find that the recursive approach, extensively used in the literature, underestimates the effects of uncertainty shocks and delivers shocks that have more in common with news shocks than with uncertainty shocks.

Keywords: economic uncertainty; external proxy SVAR; safe haven assets; news shocks; set-identification (search for similar items in EconPapers)
JEL-codes: E32 C32 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

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Related works:
Journal Article: Identifying Uncertainty Shocks Using the Price of Gold (2018) Downloads
Working Paper: Identifying Uncertainty Shocks Using the Price of Gold (2016) Downloads
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