Identifying News Shocks from Forecasts

Jonathan Adams and Philip Barrett

No 1010, Working Papers from University of Florida, Department of Economics

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.

JEL-codes: C32 E32 E52 E62 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mac
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Working Paper: Identifying News Shocks from Forecasts (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ufl:wpaper:001010

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