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On the Empirical Separability of News Shocks and Sunspots

Author

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  • Marco M. Sorge

    (BGSE, University of Bonn)

Abstract

In this note we discuss the possibility of empirically evaluating the relative importance of different drivers of forecast errors in linear rational expectations frameworks, using the predictions generated by the theory. By means of a few simple examples, we show that, when accounting for indeterminate equilibria, empirical difficulties are likely to arise in distinguishing between determinate models driven by news shocks or rather by indeterminate ones under nonfundamental – or arbitrarily related to fundamentals – sunspot noise.

Suggested Citation

  • Marco M. Sorge, 2010. "On the Empirical Separability of News Shocks and Sunspots," Notas Económicas, Faculty of Economics, University of Coimbra, issue 32, pages 44-55, December.
  • Handle: RePEc:gmf:journl:y:2010:i:32:p:44-55
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    File URL: http://notas-economicas.fe.uc.pt/texts/ne032n0206.pdf
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    References listed on IDEAS

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    5. Lubik, Thomas A. & Schorfheide, Frank, 2003. "Computing sunspot equilibria in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 273-285, November.
    6. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2008. "Fiscal Foresight: Analytics and Econometrics," NBER Working Papers 14028, National Bureau of Economic Research, Inc.
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    12. Laurence Broze & Ariane Szafarz, 1991. "The Econometric Analysis of Non-Uniqueness in Rational Expectations Models," ULB Institutional Repository 2013/649, ULB -- Universite Libre de Bruxelles.
    13. Gourieroux, C & Laffont, J J & Monfort, Alain, 1982. "Rational Expectations in Dynamic Linear Models: Analysis of the Solutions," Econometrica, Econometric Society, vol. 50(2), pages 409-425, March.
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    15. Lilia Karnizova, 2007. "News versus Sunspot Shocks in Linear Rational Expectations Models," Working Papers 0706E, University of Ottawa, Department of Economics.
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    Cited by:

    1. Sorge, Marco M., 2012. "News shocks or parametric indeterminacy? An observational equivalence result in linear rational expectations models," Economics Letters, Elsevier, vol. 114(2), pages 198-200.

    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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