Identifying Uncertainty Shocks Using the Price of Gold

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6327

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: economic uncertainty ; external proxy SVAR ; safe haven assets ; news shocks ; set-identification

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Piffer, Michele ; Podstawski, Maximilian
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/155569
• Last update: 10.03.2025, 11:42 AM CET