The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR approach

Carriero, A., Harron Mumtaz, Theodoridis, K., Theophilopoulou, A. and Mumtaz, H. 2015. The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR approach. Journal of Money, Credit and Banking. 47 (6), p. 1223–1238.

TitleThe Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR approach
AuthorsCarriero, A., Harron Mumtaz, Theodoridis, K., Theophilopoulou, A. and Mumtaz, H.
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 su¤er 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.

Keywordsuncertainty shocks, proxy SVAR, non-linear DSGE models
JournalJournal of Money, Credit and Banking
Journal citation47 (6), p. 1223–1238
ISSN1538-4616
Year2015
PublisherWiley
Accepted author manuscriptTheophilopoulou_etal_2015_AAM.pdf
Digital Object Identifier (DOI)doi:10.1111/jmcb.12243
Publication dates
Published25 Aug 2015
PublishedSep 2015

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