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A note on news about the future: the impact on DSGE models and their VAR representation

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Abstract

In this paper we investigate the role of news shocks in aggregate fluctuations by comparing the empirical performance of models with and without the feature of the news shocks. We found a trivial difference between the two models. That is, the model with news shocks explains the variation as well as the alternative. The reason is that the news shocks can only advance the date at which agents know about the changes, but they do not change the stochastic structure of the model.

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  • Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2016. "A note on news about the future: the impact on DSGE models and their VAR representation," Cardiff Economics Working Papers E2016/11, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2016/11
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    1. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
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    4. Barsky, Robert B. & Sims, Eric R., 2011. "News shocks and business cycles," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 273-289.
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    6. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2016. "Monetarism rides again? US monetary policy in a world of Quantitative Easing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 85-102.
    7. Liu, Chunping & Minford, Patrick, 2014. "Comparing behavioural and rational expectations for the US post-war economy," Economic Modelling, Elsevier, vol. 43(C), pages 407-415.
    8. Vo Le & David Meenagh & Patrick Minford & Michael Wickens & Yongdeng Xu, 2016. "Testing Macro Models by Indirect Inference: A Survey for Users," Open Economies Review, Springer, vol. 27(1), pages 1-38, February.
    9. Michael Wickens, 2012. "Macroeconomic Theory: A Dynamic General Equilibrium Approach Second Edition," Economics Books, Princeton University Press, edition 1, number 9743.
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    Cited by:

    1. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2017. "How Should News Shocks Be Specified Under Rational Expectations?," Cardiff Economics Working Papers E2017/7, Cardiff University, Cardiff Business School, Economics Section.
    2. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2020. "News and why it is not shocking: The role of micro-foundations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    News shocks; DSGE; VAR; Indirect Inference;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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