Macroeconomic Uncertainty and Vector Autoregressions

39 Pages Posted: 11 Feb 2021

See all articles by Mario Forni

Mario Forni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Centre for Economic Policy Research (CEPR)

Luca Gambetti

University of Turin

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER)

Date Written: January 2021

Abstract

We estimate measures of macroeconomic uncertainty and compute the effects of uncertainty shocks by means of a new simple procedure based on standard VARs. Uncertainty and its effects are estimated using a single model so to ensure internal consistency. Under suitable assumptions, our procedure is equivalent to using the square of the VAR forecast error as an external instrument in a proxy SVAR. Our procedure allows to add orthogonality constraints to the standard proxy SVAR identification scheme. 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.

JEL Classification: C32, E32

Suggested Citation

Forni, Mario and Gambetti, Luca and Sala, Luca, Macroeconomic Uncertainty and Vector Autoregressions (January 2021). CEPR Discussion Paper No. DP15692, Available at SSRN: https://ssrn.com/abstract=3783907

Mario Forni (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy
+39 059 205 6852 (Phone)
+39 059 205 6947 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luca Gambetti

University of Turin ( email )

Via Po 53
Torino, Turin - Piedmont 10100
Italy

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3326 (Phone)

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