A growing literature considers the impact of uncertainty using SVAR models that include proxies for uncertainty shocks as endogenous variables. In this paper, we consider the impact of measurement error in these proxies on the estimated impulse responses. We show via a Monte Carlo experiment that measurement error can result in attenuation bias in impulse responses. In contrast, the proxy SVAR that uses the uncertainty shock proxy as an instrument does not suffer from this bias. Applying this latter method to the Bloom (2009) data set results in impulse responses to uncertainty shocks that are larger in magnitude and more persistent than those obtained from a recursive SVAR.
Carriero A, Haroon Mumtaz, Kostantinos Theodoritis, Angeliki Theophilopoulou. (2015). The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR Approach. JOURNAL OF MONEY, CREDIT, AND BANKING, 47, 1223-1238 [10.1111/jmcb.12243].
The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR Approach
Carriero A;
2015
Abstract
A growing literature considers the impact of uncertainty using SVAR models that include proxies for uncertainty shocks as endogenous variables. In this paper, we consider the impact of measurement error in these proxies on the estimated impulse responses. We show via a Monte Carlo experiment that measurement error can result in attenuation bias in impulse responses. In contrast, the proxy SVAR that uses the uncertainty shock proxy as an instrument does not suffer from this bias. Applying this latter method to the Bloom (2009) data set results in impulse responses to uncertainty shocks that are larger in magnitude and more persistent than those obtained from a recursive SVAR.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
