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Identifying News Shocks from Forecasts

Author

Listed:
  • Jonathan J Adams

    (Department of Economics, University of Florida)

  • Philip Barrett

    (International Monetary Fund)

Abstract

We propose a method to identify the anticipated components of macroeconomic shocks in a structural VAR: we include empirical forecasts about each time series in the VAR, which introduces enough linear restrictions to identify each structural shock and to further decompose each one into news and surprise shocks. We estimate our VAR on US time series using forecast data from the SPF, CBO, Federal Reserve, and asset prices. The fiscal stimulus and interest rate shocks that we identify have typical effects that comport with existing evidence. In our news-surprise decomposition, we find that news contributes to a third of US business cycle volatility, where the effect of fiscal shocks is mostly anticipated, while the effect of monetary policy shocks is mostly unexpected. Finally, we use the news structure of the shocks to estimate counterfactual policy rules, and compare the ability of fiscal and monetary policy to moderate output and inflation.

Suggested Citation

  • Jonathan J Adams & Philip Barrett, 2023. "Identifying News Shocks from Forecasts," Working Papers 001010, University of Florida, Department of Economics.
    • Handle: RePEc:ufl:wpaper:001010
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    References listed on IDEAS

    as
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    More about this item

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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