Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/215407
Authors: 
Schüler, Yves S.
Year of Publication: 
2020
Series/Report no.: 
Bundesbank Discussion Paper No. 14/2020
Abstract: 
I propose a Bayesian quantile VAR to identify and assess the impact of uncertainty and certainty shocks, unifying Bloom's (2009) two identification steps into one. I find that an uncertainty shock widens the conditional distribution of future real economic activity growth, in line with a risk shock. Conversely, a certainty shock (a shock strongly decreasing uncertainty) narrows the conditional distribution of future real activity growth. In addition to the difference in signs, I show that the two shocks are different shocks. Each shock impacts the real economy uniquely. I support this with the underlying events: For instance, uncertainty shocks relate to events such as Black Monday and 9/11, but also to fears about future negative economic outcomes. In contrast, certainty shocks often link to phases of irrational exuberance. Commonly, no distinction is made between uncertainty and certainty shocks. I show that uncertainty shocks become more important if distinguished from certainty shocks.
Subjects: 
Bayesian quantile VAR
uncertainty shocks
tail risks
irrational exuberance
JEL: 
C32
E44
G01
ISBN: 
978-3-95729-687-0
Document Type: 
Working Paper

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