Identifying Uncertainty Shocks Using the Price of Gold

40 Pages Posted: 6 Nov 2015 Last revised: 2 Feb 2017

Multiple version iconThere are 3 versions of this paper

Date Written: January 19, 2017


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

JEL Classification: E32, C32, D81

Suggested Citation

Piffer, Michele and Podstawski, Maximilian, Identifying Uncertainty Shocks Using the Price of Gold (January 19, 2017). Available at SSRN: or

Michele Piffer (Contact Author)

Queen Mary, University of London ( email )

Mile End Road
London, E1 4NS
Great Britain
02078828712 (Phone)

Maximilian Podstawski

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117

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