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News and policy foresight in a macro-finance model of the US

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  • Badarinza, Cristian
  • Margaritov, Emil

Abstract

We study the effects of information shocks on macroeconomic and term structure dynamics in an estimated medium-scale DSGE model for the US economy. We consider news about total factor productivity and investment-specific technology, as well as foresight about monetary policy. Our empirical investigation confirms the findings of previous studies on the limited role played by productivity news in this class of models. In contrast, we uncover a non-trivial role for investment-specific news and anticipated monetary policy shocks not only in the historical and variance decomposition of real economic variables but also for the overall dynamic behaviour of the term structure of interest rates. We also document substantial qualitative differences in the dynamic responses of the macro-economy and the bond yield term structure to anticipated and surprise structural and policy innovations. JEL Classification: E32, E43, E52

Suggested Citation

  • Badarinza, Cristian & Margaritov, Emil, 2011. "News and policy foresight in a macro-finance model of the US," Working Paper Series 1313, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111313
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1313.pdf
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    References listed on IDEAS

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    2. Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2011. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 1-29, February.
    3. De Graeve, Ferre & Emiris, Marina & Wouters, Raf, 2009. "A structural decomposition of the US yield curve," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 545-559, May.
    4. Andr? Kurmann & Christopher Otrok, 2013. "News Shocks and the Slope of the Term Structure of Interest Rates," American Economic Review, American Economic Association, vol. 103(6), pages 2612-2632, October.
    5. Stephanie Schmitt‐Grohé & Martín Uribe, 2012. "What's News in Business Cycles," Econometrica, Econometric Society, vol. 80(6), pages 2733-2764, November.
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    Cited by:

    1. Sandra Gomes, 2011. "Housing Market Dynamics: Any News?," Working Papers w201121, Banco de Portugal, Economics and Research Department.
    2. Virginia Queijo von Heideken & Ferre De Graeve, 2012. "Fiscal policy in contemporary DSGE models," 2012 Meeting Papers 74, Society for Economic Dynamics.

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    More about this item

    Keywords

    DSGE model; news; policy foresight; term structure;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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