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Macroeconomic uncertainty and vector autoregressions

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  • Forni, Mario
  • Gambetti, Luca
  • Sala, Luca

Abstract

A procedure to estimate measures of macroeconomic uncertainty and compute the effects of uncertainty shocks based on standard VARs is proposed. Uncertainty and its effects are estimated using a single model so to ensure internal consistency. Under suitable assumptions, the procedure is equivalent to using the square of the VAR forecast error as an external instrument in a proxy SVAR. The procedure allows to add orthogonality constraints to the standard proxy SVAR identification scheme. The method is applied to a US data set; results show that macroeconomic uncertainty is responsible of a large fraction of business-cycle fluctuations while financial uncertainty plays a modest role.

Suggested Citation

  • Forni, Mario & Gambetti, Luca & Sala, Luca, 2026. "Macroeconomic uncertainty and vector autoregressions," Econometrics and Statistics, Elsevier, vol. 39(C), pages 61-80.
    • Handle: RePEc:eee:ecosta:v:39:y:2026:i:c:p:61-80
    DOI: 10.1016/j.ecosta.2023.07.002
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