Riassunto analitico
In the present work, we study the effects of uncertainty on business-cycle fluctuations using a VAR methodology, and identifying the structural form via modification of the so called “proxy SVAR” scheme, introduced by Stock and Watson (2008) and Mertens and Ravn (2013).
To proxy uncertainty, we use the square of the forecast errors, that we find by predicting the values of unemployment at different time horizons, and comparing these predictions with the actual ex-post realizations; we assume that this series is correlated with uncertainty shocks and orthogonal to all the remaining ones. In addition, we make some further comments on three different ways in which one can see the “proxy SVAR” identification problem. Finally, we add also orthogonality constraints to relax the assumptions needed when using the proxy SVAR method.
In line with the existing literature, we find that uncertainty has relevant negative effects (which are also very robust) on the economy and plays a crucial role in guiding the business-cycle fluctuations.
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