Granger Centre Seminar: Andrea Carriero (Queen Mary University London)

Title: Endogenous uncertainty (with Todd Clark and Massimiliano Marcellino)

Abstract:   We develop a structural VAR with stochastic volatility in which one of the variables can impact both the mean and the variance of the other variables. We provide conditional posterior distributions for this model, develop an MCMC algorithm for estimation, and show how stochastic volatility can be used to provide useful restrictionsfor the identification of structural shocks. We then use the model to show that macro-economic uncertainty can be considered as exogenous when assessing its effects on the U.S. economy. Instead, financial uncertainty can at least in part arise as an endogenous response to some macroeconomic developments, and overlooking this channel leads to distortions in the estimated effects of financial uncertainty shocks on the economy.

NB:  This seminar is on a Monday