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Identifying News Shocks from SVARs

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  • Féve, Patrick
  • Jidoud, Ahmat

Abstract

This paper investigates the reliability of SVARs in identifying the dynamic effects of news shocks. Using a simple but insightful model with a non-fundamental representation, we show analytically under which conditions SVARs are likely to be successful at identifying news shocks. We find that the dynamic responses to news shocks identified using a short-run restriction are biased. However, this bias is smaller if news shocks account for most of the variability of the endogenous variable and the economy exhibits strong forward-looking behavior. Our simulation experiments confirm this finding and further suggest that the number of lags in the VAR and the anticipation horizon are key ingredients for the success of the VAR setup.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 4 ()
Pages: 919-932

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:4:p:919-932

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: News shocks; SVARs; Identification; Non-fundamentalness;

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References

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  1. Paul Beaudry & Bernd Lucke, 2009. "Letting Different Views about Business Cycles Compete," NBER Working Papers 14950, National Bureau of Economic Research, Inc.
  2. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Chapters, in: Enhancing Productivity (NBER-CEPR-TCER-Keio conference) National Bureau of Economic Research, Inc.
  3. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
  4. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2006. "Assessing structural VARs," International Finance Discussion Papers 866, Board of Governors of the Federal Reserve System (U.S.).
    • Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2007. "Assessing Structural VARs," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 1-106 National Bureau of Economic Research, Inc.
  5. Eric R. Sims, 2012. "News, Non-Invertibility, and Structural VARs," Working Papers 013, University of Notre Dame, Department of Economics, revised Jun 2012.
  6. Paul Beaudry & Franck Portier, 2005. "The "News" View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral U.S. Data," NBER Working Papers 11496, National Bureau of Economic Research, Inc.
  7. Morten O. Ravn & Karel Mertens, 2009. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy shocks," 2009 Meeting Papers 480, Society for Economic Dynamics.
  8. Hashmat Khan & John Tsoukalas, 2009. "The Quantitative Importance of News Shocks in Estimated DSGE Models," Carleton Economic Papers 09-07, Carleton University, Department of Economics, revised 22 May 2012.
  9. Chari, V.V. & Kehoe, Patrick J. & McGrattan, Ellen R., 2008. "Are structural VARs with long-run restrictions useful in developing business cycle theory?," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1337-1352, November.
  10. Eric M. Leeper & Todd B. Walker & Shu‐Chun Susan Yang, 2013. "Fiscal Foresight and Information Flows," Econometrica, Econometric Society, vol. 81(3), pages 1115-1145, 05.
  11. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  12. Barsky, Robert B. & Sims, Eric R., 2011. "News shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 273-289.
  13. Karel Mertens & Morten Overgaard Ravn, 2010. "Online Appendix to "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks"," Technical Appendices 09-221, Review of Economic Dynamics.
  14. Mertens, Karel & Ravn, Morten O., 2009. "Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach," CEPR Discussion Papers 7423, C.E.P.R. Discussion Papers.
  15. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
  16. Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2011. "Non‐Fundamentalness in Structural Econometric Models: A Review," International Statistical Review, International Statistical Institute, vol. 79(1), pages 16-47, 04.
  17. Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2007. "A Review of Nonfundamentalness and Identification in Structural VAR Models," LEM Papers Series 2007/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  18. Federico Ravenna, 2006. "Vector autoregressions and reduced form representations of DSGE models," Banco de Espa�a Working Papers 0619, Banco de Espa�a.
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  20. Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2009. "On the dynamic implications of news shocks," Economics Letters, Elsevier, vol. 102(2), pages 96-98, February.
  21. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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Cited by:
  1. Seymen, Atılım, 2013. "Sequential identification of technological news shocks," ZEW Discussion Papers 13-111, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Marco M. Sorge, 2013. "On the Fundamentalness of Nonfundamentalness in DSGE Models," CSEF Working Papers 340, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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