Uncertainty Across Volatility Regimes

78 Pages Posted: 5 Dec 2017

See all articles by Giovanni Angelini

Giovanni Angelini

University of Bologna - School of Economics, Management, and Statistics

Emanuele Bacchiocchi

Università degli Studi di Milano

Giovanni Caggiano

Department of Economics, Monash University; University of Padova

Luca Fanelli

Universita di Bologna

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2017

Abstract

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: heteroskedasticity, identification, non-recursive SVAR, uncertainty shocks, volatility regime

JEL Classification: C32, C51, E44, G01

Suggested Citation

Angelini, Giovanni and Bacchiocchi, Emanuele and Caggiano, Giovanni and Fanelli, Luca, Uncertainty Across Volatility Regimes (November 30, 2017). Bank of Finland Research Discussion Paper No. 35/2017, Available at SSRN: https://ssrn.com/abstract=3080814

Giovanni Angelini (Contact Author)

University of Bologna - School of Economics, Management, and Statistics ( email )

40126 Bologna
Italy

Emanuele Bacchiocchi

Università degli Studi di Milano ( email )

Milan, 20122
Italy

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padova ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Luca Fanelli

Universita di Bologna ( email )

Bologna, 40126
Italy

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