Endogenous Uncertainty

Carreiro, Andrea; Clark, Todd E.; Marcellino, Massimiliano

doi:10.2139/ssrn.3152579

Cited by 13 publications

(35 citation statements)

References 47 publications

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“…This evidence confirms the results in Angelini et al (2017), who identify the structural shocks by using the identification-through-heteroskedasticity approach developed in Bacchiocchi and Fanelli (2015) and Bacchiocchi et al (2018). It also lines up with Carriero et al (2018), who identify the structural shocks by using a stochastic volatility approach (using both monthly and quarterly variables) but using measures of macroeconomic and financial uncertainty one at a time. Carriero et al (2018) report mild evidence for the endogeneity of uncertainty, and this evidence is limited to financial uncertainty and, mainly, to monthly variables.…”

Section: The Upper Panel Ofsupporting

confidence: 88%

“…It also lines up with Carriero et al (2018), who identify the structural shocks by using a stochastic volatility approach (using both monthly and quarterly variables) but using measures of macroeconomic and financial uncertainty one at a time. Carriero et al (2018) report mild evidence for the endogeneity of uncertainty, and this evidence is limited to financial uncertainty and, mainly, to monthly variables. Finally, our empirical results are partially consistent with Ludvigson et al (2018), who report that sharply higher uncertainty about real economic activity in recessions is an endogenous response to other shocks, while uncertainty about financial markets is a likely…”

Section: The Upper Panel Ofmentioning

confidence: 72%

“…investigated by small-scale non-recursive SVARs in Ludvigson et al (2018), Angelini et al (2017) and Carriero et al (2018), using different methods to identify the shocks. These authors report robust empirical evidence on the exogeneity of financial uncertainty, but mixed empirical evidence on the exogeneity of macroeconomic uncertainty.…”

Section: Estimationmentioning

confidence: 99%

“…Conversely, we confine our main attention to the identification of the real economic activity shock and its impact on macroeconomic and financial uncertainty. Carriero et al (2018) identify the shocks also in a SVAR framework using a stochastic volatility approach by using measures of macroeconomic and financial uncertainty one at a time, not jointly. Throughout the paper we use the following notation, matrices and conventions, most of which are taken from Magnus and Neudecker (1999).…”

Section: Introductionmentioning

confidence: 99%

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Identification and Estimation Issues in Structural Vector Autoregressions with External Instruments

Angelini

Fanelli

2018

SSRN Journal

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In this paper we discuss general identification results for Structural Vector Autoregressions (SVARs) with external instruments, considering the case in which r valid instruments are used to identify g ≥ 1 structural shocks, where r ≥ g. We endow the SVAR with an auxiliary statistical model for the external instruments which is a system of reduced form equations. The SVAR and the auxiliary model for the external instruments jointly form a 'larger' SVAR characterized by a particularly restricted parametric structure, and are connected by the covariance matrix of their disturbances which incorporates the 'relevance' and 'exogeneity' conditions. We discuss identification results and likelihood-based estimation methods both in the 'multiple shocks' approach, where all structural shocks are of interest, and in the 'partial shock' approach, where only a subset of the structural shocks is of interest. Overidentified SVARs with external instruments can be easily tested in our setup. The suggested method is applied to investigate empirically whether commonly employed measures of macroeconomic and financial uncertainty respond on-impact, other than with lags, to business cycle fluctuations in the U.S. in the period after the Global Financial Crisis. To do so, we employ two external instruments to identify the real economic activity shock in a partial shock approach.

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Section: The Upper Panel Ofsupporting

confidence: 88%

Section: The Upper Panel Ofmentioning

confidence: 72%

Section: Estimationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Identification and Estimation Issues in Structural Vector Autoregressions with External Instruments

Angelini

Fanelli

2018

SSRN Journal

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“…9 Our identifying assumption is also similar to that of Baker et al (2016) except we placed the federal funds rate after CPI and output. Such an 9 While the emerging literature questions the exogeneity of uncertainty shocks and argues that uncertainty could increase as an "endogenous" response to aggregate fluctuations (Ludvigson et al, 2015;Fajgelbaum et al, 2017;Carreiro et al, 2018;Plante et al, 2018), we adopt the most commonly used identification here to facilitate comparisons with many existing empirical studies, as well as to give the uncertainty shock the best chance as a business cycle driver.…”

Section: A Structural Vector Autoregressionsmentioning

confidence: 99%

Uncertainty, Financial Markets, and Monetary Policy over the Last Century

Choi

Yoon

2019

SSRN Journal

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What has been the effect of uncertainty shocks in the U.S. economy over the last century? What are the historical roles of the financial channel and monetary policy channel in propagating uncertainty shocks? Our empirical strategies enable us to distinguish between the effects of uncertainty shocks on key macroeconomic and financial variables transmitted through each channel. A hundred years of data further allow us to answer these questions from a novel historical perspective. This paper finds robust evidence that financial conditions have played a crucial role in propagating uncertainty shocks over the last century, supporting many theoretical and empirical studies emphasizing the role of financial frictions in understanding uncertainty shocks. However, heightened uncertainty does not amplify the adverse effect of financial shocks, suggesting an asymmetric interaction between uncertainty and financial shocks. Interestingly, the stance of monetary policy seems to play only a minor role in propagating uncertainty shocks, which is in sharp contrast to the recent claim that binding zero-lower-bound amplifies the negative effect of uncertainty shocks. We argue that the contribution of constrained monetary policy to amplifying uncertainty shocks is largely masked by the joint concurrence of binding zero-lower-bound and tightened financial conditions.

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Exogenous uncertainty and the identification of structural vector autoregressions with external instruments

Angelini

Fanelli

2019

J of Applied Econometrics

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Summary We provide necessary and sufficient conditions for the identification (point‐identification) of structural vector autoregressions (SVARs) with external instruments considering the case in which r instruments are used to identify g structural shocks of interest, r ≥ g ≥ 1. Novel frequentist estimation methods are discussed by considering both a “partial shocks” identification strategy, where only g structural shocks are of interest and are instrumented, and a “full shocks” identification strategy, where despite g structural shocks being instrumented, all n=g+(n−g) structural shocks of the system can be identified under certain conditions. The suggested approach is applied to investigate empirically whether financial and macroeconomic uncertainty can be approximated as exogenous drivers of US real economic activity, or rather as endogenous responses to first moment shocks, or both. We analyze whether the dynamic causal effects of nonuncertainty shocks on macroeconomic and financial uncertainty are significant in the period after the global financial crisis.

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Endogenous Uncertainty

Cited by 13 publications

References 47 publications

Identification and Estimation Issues in Structural Vector Autoregressions with External Instruments

Identification and Estimation Issues in Structural Vector Autoregressions with External Instruments

Uncertainty, Financial Markets, and Monetary Policy over the Last Century

Exogenous uncertainty and the identification of structural vector autoregressions with external instruments

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