Identifying uncertainty shocks using the price of gold

Michele Piffer, Maximilian Podstawski

Research output: Contribution to journalArticlepeer-review

78 Citations (Scopus)

Abstract

We propose an instrument to identify uncertainty shocks in a proxy structural vector autoregressive model (SVAR). The instrument equals the variations in the price of gold around events associated with unexpected changes in uncertainty. These variations correlate with uncertainty shocks because gold is perceived as a safe haven asset. To control for news‐related effects associated with the events we identify uncertainty and news shocks jointly, developing a set‐identified proxy SVAR. We find that the popular recursive approach underestimates the effects of uncertainty shocks and delivers responses for economic activity and monetary policy that have more in common with news shocks than with uncertainty shocks.
Original languageEnglish
Pages (from-to)3266-3284
JournalThe Economic Journal
Volume128
Issue number616
Early online date18 Dec 2017
DOIs
Publication statusPublished - 10 Dec 2018

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