Reference

Patrick Fève, and Ahmat Jidoud, “News Shocks, Information Flows and SVARs”, IDEI Working Paper, n. 705, March 2012.

Abstract

This paper assesses SVARs as relevant tools at identifying the aggregate effects of news shocks. When the econometrician and private agents’ information sets are not aligned, the dynamic responses identified from SVARs are biased. However, the bias vanishes when news shocks account for the bulk of fluctuations in the economy. A simple correlation diagnostic test shows that under this condition, news shocks identified through long–run and short–run restrictions have a correlation close to unity.

Keywords

Information Flows; News shocks; Non–fundamentalness; SVARs; Identification;

JEL codes

  • C32: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes
  • C52: Model Evaluation, Validation, and Selection
  • E32: Business Fluctuations • Cycles