Are the Effects of Uncertainty Shocks Big or Small?

Piergiorgio Alessandri, Andrea Giovanni Gazzani and Alejandro Vicondoa

No 244, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: Previous works have reached widely divergent conclusions on the macroeconomic relevance of uncertainty shocks. We show that this disagreement reflects identification problems linked to the use of financial data in low-frequency VAR models. To bypass this difficulty, we identify uncertainty shocks using daily data and use their monthly averages as instruments in VARs. This novel identification approach captures within-month interactions between uncertainty and asset prices, providing a full picture of the pivotal role of financial markets in propagating uncertainty to the real economy. Once these interactions are accounted for, thedisagreement disappears: uncertainty shocks have a small but significant impact on economic activity across specifications and identification schemes.

Keywords: uncertainty shocks; financial shocks; structural vector autoregression; high-frequency identification; external instruments (search for similar items in EconPapers)
JEL-codes: C32 C36 E32 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://rednie.eco.unc.edu.ar/files/DT/244.pdf (application/pdf)

Related works:
Journal Article: Are the effects of uncertainty shocks big or small? (2023)
Working Paper: Are the Effects of Uncertainty Shocks Big or Small? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:244

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