 Measuring the effects of expectations shocksMichael Clements and Ana Galvão Journal of Economic Dynamics and Control, 2021, vol. 124, issue C Abstract: We seek to improve the measurement of the dynamic causal effects of expectation shocks by addressing issues related to data uncertainty. The expectations shocks are estimated in a mixed-frequency VAR model which incorporates monthly and quarterly economic and financial indicators. The VAR is estimated on real-time data to prevent the shocks being confounded with the effects of data uncertainty. But dynamic responses are calculated using a quarterly VAR for revised data, estimated using older vintages as instruments to account for the fact that ‘true values’ of key macroeconomic variables may never be observed. We show that expectations shocks – revisions in GDP expectations unrelated to changes in current economic fundamentals and orthogonalized to other, potentially related shocks – explain 7–8% of the two-year variation of output, investment, consumption and hours. This is similar to the proportion of business-cycle variation explained by monetary shocks, for example. Keywords: Mixed-frequency vector autoregressive models; Real-time data; Measurement errors; Expectational shocks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:124:y:2021:i:c:s0165188921000105 DOI: 10.1016/j.jedc.2021.104075 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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