Identifying Uncertainty Shocks Using the Price of Gold

Diskussionspapiere extern , 39 S.

Michele Piffer, Maximilian Podstawski

München: CESifo, 2017, 39 S.
(CESifo Working Papers ; 6327)

Abstract

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.

Michele Piffer

Visiting Fellow in der Abteilung Makroökonomie

Maximilian Podstawski

Wissenschaftlicher Mitarbeiter in der Abteilung Konjunkturpolitik

Themen: Konjunktur



JEL-Classification: E32;C32;D81
Keywords: economic uncertainty, external proxy SVAR, safe haven assets, news shocks, set-identification
Externer Link:
https://www.cesifo-group.de/DocDL/cesifo1_wp6327.pdf
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/129209