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Identifying News Shocks from SVARs

Listed author(s):
  • Féve, Patrick
  • Jidoud, Ahmat

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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File URL: http://www.sciencedirect.com/science/article/pii/S0164070412000687
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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
DOI: 10.1016/j.jmacro.2012.07.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. 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.
  2. Karel Mertens & MortenO. Ravn, 2010. "Measuring the Impact of Fiscal Policy in the Face of Anticipation: A Structural VAR Approach," Economic Journal, Royal Economic Society, vol. 120(544), pages 393-413, 05.
  3. 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.
  4. Hashmat Khan & John Tsoukalas, 2012. "The Quantitative Importance of News Shocks in Estimated DSGE Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1535-1561, December.
  5. Ravenna, Federico, 2007. "Vector autoregressions and reduced form representations of DSGE models," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2048-2064, October.
  6. Barsky, Robert B. & Sims, Eric R., 2011. "News shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 273-289.
  7. Paul Beaudry & Franck Portier, 2006. "Stock Prices, News, and Economic Fluctuations," American Economic Review, American Economic Association, vol. 96(4), pages 1293-1307, September.
  8. 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, 02.
  9. Karel Mertens & Morten Overgaard Ravn, 2011. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 27-54, January.
  10. Beaudry, Paul & Portier, Franck, 2005. "The "news view" of economic fluctuations: Evidence from aggregate Japanese data and sectoral US data," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 635-652, December.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
  16. 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.
  17. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  18. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455 National Bureau of Economic Research, Inc.
  19. Eric R. Sims, 2012. "News, Non-Invertibility, and Structural VARs," Working Papers 013, University of Notre Dame, Department of Economics, revised Jun 2012.
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