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Are asset price data informative about news shocks? A DSGE perspective

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  • Nikolay Iskrev

Abstract

Standard economic intuition suggests that asset prices are more sensitive to news than other economic aggregates.This has led many researchers to conclude that asset price data would be very useful for the estimation of business cycle models containing news shocks.This paper shows how to formally evaluate the information content of observed variables with respect to unobservedshocks in structural macroeconomic models.The proposed methodology is applied to two different real business cycle models with news shocks.The contribution of asset prices is found to be relatively small.The methodology is general and can be used to measure the informational importance of observables with respect to latent variables in DSGE models.Thus,it provides a framework for systematic treatment of such issues,which are usually discussed in an informal manner in the literature.

Suggested Citation

  • Nikolay Iskrev, 2018. "Are asset price data informative about news shocks? A DSGE perspective," Working Papers REM 2018/33, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0332018
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    References listed on IDEAS

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    1. Are asset price data informative about news shocks? A DSGE perspective
      by Christian Zimmermann in NEP-DGE blog on 2018-08-22 19:26:17

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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