Identifying Uncertainty Shocks Using the Price of Gold

By Michele Piffer, Maximilian Podstawski. Social Science Research Network, 2018

155 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/44303b3a8584b0660cfe83110530793cd08f767c

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In Economics and Econometrics

1. Refk Selmi
2. Jamal Bouoiyour
3. M. Wohar
4. Michael W. McCracken

Citations in the corpus

• Uncertainty and Business Cycles: Exogenous Impulse or Endogenous Response? (2015, unknown): “But as noted in Ramey (2016), both assumptions are questionable.”
• Measuring the response of gold prices to uncertainty: An analysis beyond the mean (2018, result): “ders) respond to the great uncertainty by rebalancing their investments toward the safe asset, or because those who hold such an asset are less willing to sell it ( Caballero and Krishnamurthy, 2008; Piffer and Podstawski, 2017). But our findings contribute to the existing literature on the issue by”