Identifying News Shocks from SVARs

Patrick Fève and Ahmat Jidoud ()

Journal of Macroeconomics, 2012, vol. 34, issue 4, 919-932

Abstract: This paper investigates the reliability of SVARs in identifying the dynamic effects of news shocks. Using a simple but insightful model with a non-fundamental representation, we show analytically under which conditions SVARs are likely to be successful at identifying news shocks. We find that the dynamic responses to news shocks identified using a short-run restriction are biased. However, this bias is smaller if news shocks account for most of the variability of the endogenous variable and the economy exhibits strong forward-looking behavior. Our simulation experiments confirm this finding and further suggest that the number of lags in the VAR and the anticipation horizon are key ingredients for the success of the VAR setup.

Keywords: News shocks; SVARs; Identification; Non-fundamentalness (search for similar items in EconPapers)
JEL-codes: C32 C52 E32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:4:p:919-932

DOI: 10.1016/j.jmacro.2012.07.002

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