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A Note on Information Flows and Identification of News Shocks Models

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  • Marco M. Sorge

Abstract

This note points out a hitherto unrecognised identification issue in a class of rational expectations (RE) models with news shocks. We show that different degrees of anticipation (information flows) have strikingly different implications for the identifiability of the underlying structural model, irrespective of its non-fundamental time-series representation. In particular, under full shock anticipation equilibrium reduced forms behave as noisy perfect foresight state motions, which are non-identifiable. As a consequence, the underlying news shocks model fails to be (first-order) identified. The identification failure is illustrated with a New Keynesian model that can be solved analytically.

Suggested Citation

  • Marco M. Sorge, 2013. "A Note on Information Flows and Identification of News Shocks Models," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(1), pages 28-38.
  • Handle: RePEc:eei:journl:v:56:y:2013:i:1:p:28-38
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    Cited by:

    1. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    2. Marco M. Sorge, 2013. "A Note on Information Flows and Identification of News Shocks Models," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(1), pages 28-38.

    More about this item

    Keywords

    Rational expectations; perfect foresight; news shocks; identification.;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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