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

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Title	The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR approach
Type	Journal article
Authors	Carriero, 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.
Keywords	uncertainty shocks, proxy SVAR, non-linear DSGE models
Journal	Journal of Money, Credit and Banking
Journal citation	47 (6), p. 1223–1238
ISSN	1538-4616
Year	2015
Publisher	Wiley
Accepted author manuscript	Theophilopoulou_etal_2015_AAM.pdf
Digital Object Identifier (DOI)	https://doi.org/10.1111/jmcb.12243
Published	25 Aug 2015
Published	Sep 2015

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

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