A New Approach to Identifying the Real Effects of Uncertainty Shocks

Min Chul Shin, Molin Zhong

Research output: Contribution to journalArticlepeer-review


This article introduces the use of the sign restrictions methodology to identify uncertainty shocks. We apply our methodology to a class of vector autoregression models with stochastic volatility that allow volatility fluctuations to impact the conditional mean. We combine sign restrictions on the conditional mean and conditional second moment impulse responses to identify financial and macro uncertainty shocks. On U.S. data, we find stronger evidence that financial uncertainty shocks lead to a decline in real activity and an easing of the federal funds rate relative to macro uncertainty shocks. Supplementary materials for this article are available online.

Original languageEnglish (US)
Pages (from-to)367-379
Number of pages13
JournalJournal of Business and Economic Statistics
Issue number2
Early online date2018
StatePublished - Apr 2 2020


  • Multivariate stochastic volatility
  • Sign restrictions
  • Uncertainty
  • Vector autoregression
  • Volatility-in-mean
  • Wishart process

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty


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