Evidence on News Shocks under Information Deficiency
MPRA Paper from University Library of Munich, Germany
News shocks about future productivity can be correctly inferred from a conventional VAR model only if information contained in observables is rich enough. This paper examines news shocks by means of a noncausal VAR model that recovers economic shocks from both past and future variation. As noncausality is implied by nonfundamentalness, the model solves the problem of insufficient information per se. By the impulse responses derived from the model, variables react to the anticipated structural shocks, which are identified by exploiting future dependence of investment with respect to productivity. In the U.S. economy, news about improving total factor productivity moves investment and stock prices on impact, but these responses are likely affected by a parallel increase in productivity. The news shock gradually diffuses to productivity and generates smooth reactions of forward-looking variables.
Keywords: News shocks; Structural VAR analysis; Nonfundamentalness; Noncausal VAR (search for similar items in EconPapers)
JEL-codes: C18 C32 C53 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/80850/1/MPRA_paper_80850.pdf original version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80850
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().