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Recoverability and Expectations-Driven Fluctuations

Author

Listed:
  • Ryan Chahrour
  • Kyle Jurado

Abstract

Time series methods for identifying structural economic disturbances often require disturbances to satisfy technical conditions that can be inconsistent with economic theory. We propose replacing these conditions with a less restrictive condition called recoverability, which only requires that the disturbances can be inferred from the observable variables. As an application, we show how shifting attention to recoverability makes it possible to construct new identifying restrictions for technological and expectational disturbances. In a vector autoregressive example using post-war U.S. data, these restrictions imply that independent disturbances to expectations about future technology are a major driver of business cycles.

Suggested Citation

  • Ryan Chahrour & Kyle Jurado, 2022. "Recoverability and Expectations-Driven Fluctuations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(1), pages 214-239.
    • Handle: RePEc:oup:restud:v:89:y:2022:i:1:p:214-239.
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    File URL: http://hdl.handle.net/10.1093/restud/rdab010
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    Citations

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    Cited by:

    1. Pagan, Adrian & Robinson, Tim, 2022. "Excess shocks can limit the economic interpretation," European Economic Review, Elsevier, vol. 145(C).
    2. Davide Brignone & Alessandro Franconi & Marco Mazzali, 2023. "Robust Impulse Responses using External Instruments: the Role of Information," Papers 2307.06145, arXiv.org.
    3. Buncic, Daniel, 2024. "Econometric issues in the estimation of the natural rate of interest," Economic Modelling, Elsevier, vol. 132(C).
    4. Bartosz Maćkowiak & Mirko Wiederholt, 2025. "Rational Inattention and the Business Cycle Effects of Productivity and News Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(1), pages 274-309, January.
    5. Paul Levine & Joseph Pearlman & Stephen Wright & Bo Yang, 2023. "Imperfect Information and Hidden Dynamics," School of Economics Discussion Papers 1223, School of Economics, University of Surrey.
    6. Òscar Jordà & Alan M. Taylor, 2024. "Local Projections," Working Paper Series 2024-24, Federal Reserve Bank of San Francisco.
    7. Jonathan Adams & Philip Barrett, 2024. "Shocks to Inflation Expectations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 54, October.
    8. Brianti, Marco & Cormun, Vito, 2024. "Expectation-driven boom-bust cycles," Journal of Monetary Economics, Elsevier, vol. 146(C).
    9. Adams, Jonathan J., 2023. "Moderating noise-driven macroeconomic fluctuations under dispersed information," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).
    10. Yang, Yang & Tang, Yanling & Zhang, Ren & Wu, Li, 2023. "Investigating the impact of technology and noise shocks on capital flows," Finance Research Letters, Elsevier, vol. 56(C).
    11. Guay, Alain & Pelgrin, Florian, 2023. "Structural VAR models in the Frequency Domain," Journal of Econometrics, Elsevier, vol. 236(1).

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