Generalizing the Max Share Identification to multiple shocks identification: an Application to Uncertainty

Andrea Carriero and Alessio Volpicella ()

No 322, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: We generalize the Max Share Identification approach to allow for simultaneous identification of a multiplicity of shocks in a Structural Vector Autoregression. Our machinery therefore overcomes the well-known drawbacks that individually identified shocks (i) tend to be correlated to each other or (ii) can be separated under orthogonalizations with weak economic ground. We show that identification corresponds to solving a non-trivial optimization problem on the columns transforming reduced-form shocks into structural shocks. We provide conditions for existence and uniqueness of a solution, and Bayesian algorithms for estimation and inference. We use the approach to study the effects of uncertainty shocks, allowing for the possibility that uncertainty is an endogenous variable, and distinguishing macroeconomic from financial uncertainty. Using US data we find that macroeconomic uncertainty is mostly endogenous, and that overlooking this fact can lead to distortions on the estimates of its effects. We show that the distinction between macroeconomic and financial uncertainty is empirically relevant. Finally, we study the relation between uncertainty shocks and pure financial shocks, showing that the latter can have attenuated effects if one does not take into account the endogeneity of uncertainty.

JEL-codes: C11 C32 E32 E37 E44 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ecm, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.som.surrey.ac.uk/2022/DP03-22.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0322

Access Statistics for this paper

More papers in School of Economics Discussion Papers from School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Ioannis Lazopoulos ().