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Macroeconomic Uncertainty and Vector Autoregressions

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  • Mario Forni
  • Luca Gambetti
  • Luca Sala

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.

Suggested Citation

  • Mario Forni & Luca Gambetti & Luca Sala, 2020. "Macroeconomic Uncertainty and Vector Autoregressions," Center for Economic Research (RECent) 148, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
    • Handle: RePEc:mod:recent:148
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    References listed on IDEAS

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    1. repec:zbw:bofrdp:2022_005 is not listed on IDEAS
    2. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Research Discussion Papers 5/2020, Bank of Finland.
    3. Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2020, Bank of Finland.

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    More about this item

    Keywords

    Uncertainty shocks; OLS estimation; Stochastic volatility;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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