The impact of uncertainty shocks under measurement error: A proxy SVAR approach

Carriero, Andrea, Mumtaz, Haroon, Theodoridis, Konstantinos ORCID: https://orcid.org/0000-0002-4039-3895 and Theophilopoulou, Angeliki 2015. The impact of uncertainty shocks under measurement error: A proxy SVAR approach. Journal of Money, Credit and Banking 47 (6) , pp. 1223-1238. 10.1111/jmcb.12243

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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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Publisher:	Wiley
ISSN:	0022-2879
Date of Acceptance:	21 January 2015
Last Modified:	24 Oct 2022 07:46
URI:	https://orca.cardiff.ac.uk/id/eprint/115875

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