Uncertainty Across Volatility Regimes
Emanuele Bacchiocchi (),
Giovanni Caggiano () and
Luca Fanelli ()
No 6799, CESifo Working Paper Series from CESifo Group Munich
We propose a new non-recursive identification scheme for uncertainty shocks, which exploits breaks in the unconditional volatility of macroeconomic variables. Such identification approach allows us to simultaneously address two major questions in the empirical literature on uncertainty: (i) Does the relationship between uncertainty and economic activity change across macroeconomic regimes? (ii) Is uncertainty a major cause or effect (or both) of decline in economic activity? Empirical results based on a small-scale VAR with US monthly data for the period 1960-2015 suggest that (i) the effects of uncertainty shocks are regime-dependent, and (ii) uncertainty is an exogenous source of decline of economic activity, rather than an endogenous response to it.
Keywords: heteroscedasticity; identification; non-recursive SVAR; uncertainty shocks; volatility regime (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets and nep-mac
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Journal Article: Uncertainty across volatility regimes (2019)
Working Paper: Uncertainty across volatility regimes (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6799
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