Identification of a Single Independent Shock in Structural VARs, with an Application to Economic Uncertainty

We establish the identification of a single shock in a structural vector autoregressive model under the assumption that this shock is independent of the remaining shocks in the system, without requiring mutual independence among the latter—in contrast to the standard assumptions in the independent component analysis literature. The shock of interest may be either non-Gaussian or Gaussian; in the latter case, identification requires that the other shocks be jointly non-Gaussian. We formally prove the global identification of the shock and the associated column of the impact multiplier matrix, and we discuss consistent parameter estimation by pseudo-maximum likelihood. A detailed Monte Carlo study illustrates the finite-sample properties of our identification and estimation procedures. Finally, we apply the method to estimate the dynamic effect of a contraction in economic activity on different types of economic uncertainty. We find that monetary policy uncertainty responds positively to output shocks and more sharply than do economic policy and f iscal policy uncertainties.