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On the (de)stabilizing effects of news shocks

  • Roland Winkler
  • Hans-Werner Wohltmann

This paper analyzes the impacts of news shocks on macroeconomic volatility. Whereas anticipation amplifies volatility in any purely forward-looking model, such as the baseline New Keynesian model, the results are ambiguous when including a backward-looking component. In addition to these theoretical findings, we use the estimated model of Smets and Wouters (2003) to provide numerical evidence that news shocks increase the volatility of key macroeconomic variables in the euro area when compared to unanticipated shocks.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1542.

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Length: 7 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:kie:kieliw:1542
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  1. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Working Papers 10548, National Bureau of Economic Research, Inc.
  2. Paul Beaudry & Bernd Lucke, 2009. "Letting Different Views about Business Cycles Compete," NBER Working Papers 14950, National Bureau of Economic Research, Inc.
  3. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  4. Schmitt-Grohé, Stephanie & Uribe, Martín, 2009. "What’s News in Business Cycles," CEPR Discussion Papers 7201, C.E.P.R. Discussion Papers.
  5. 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.
  6. M. Woodford., 2010. "Convergence in Macroeconomics: Elements of the New Synthesis," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
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