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The Effects of Uncertainty Shocks on Daily Prices

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Abstract

In this paper, we investigate the effects of uncertainty shocks on the US daily online price index by Cavallo and Rigobon (J Econ Perspect 30(2):151–78, 2016) within a VAR framework. We find evidence that shocks increasing uncertainty dampen prices significantly. This result is robust to various changes to the baseline model and rejects the Upward Pricing Bias that is often found in the Sticky-Price DSGE literature.

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Fig. 1

Sources: The US consumer price index is taken from the US Bureau of Labor Statistics. The online price index is taken from Cavallo and Rigobon (2016) (colour figure online)

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Notes

  1. In Sect. 4.1 we run a similar VAR with the Uncertainty Index by Scotti (2016) finding similar results.

  2. Different from Bloom (2009), we employed the raw VIX series as a proxy for uncertainty instead of the dummy series of large VIX spikes.

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Authors and Affiliations

  1. European University Institute, Florence, Italy

    Dario Bonciani

  2. Rome, Italy

    Andrea Tafuro

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  1. Dario Bonciani
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  2. Andrea Tafuro
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Correspondence to Dario Bonciani.

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Bonciani, D., Tafuro, A. The Effects of Uncertainty Shocks on Daily Prices. J Bus Cycle Res 14, 89–104 (2018). https://doi.org/10.1007/s41549-018-0024-2

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  • DOI: https://doi.org/10.1007/s41549-018-0024-2

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