Arbeitspapier

Identifying uncertainty shocks using the price of gold

We propose a new instrument to identify the impact of uncertainty shocks in a SVAR model with external instruments. We construct the instrument for uncertainty shocks by exploiting variations in the price of gold around selected events. The events capture periods of changes in uncertainty unrelated to other macroeconomic shocks. The variations in the price of gold around such events provide a measure correlated with the underlying uncertainty shocks, due to the perception of gold as a safe haven asset. The proposed approach improves upon the recursive identification of uncertainty shocks by not restricting only one structural shock to potentially affect all variables in the system. Replicating Bloom (2009), we find that the recursive approach underestimates the effects of uncertainty shocks and their role in driving monetary policy.

Language
Englisch

Bibliographic citation
Series: DIW Discussion Papers ; No. 1549

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

Event
Geistige Schöpfung
(who)
Piffer, Michele
Podstawski, Maximilian
Event
Veröffentlichung
(who)
Deutsches Institut für Wirtschaftsforschung (DIW)
(where)
Berlin
(when)
2016

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Piffer, Michele
  • Podstawski, Maximilian
  • Deutsches Institut für Wirtschaftsforschung (DIW)

Time of origin

  • 2016

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