Identifying Noise Shocks

Joshua Chan, Luca Benati (), Eric Eisenstat and Gary Koop

No 41, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: We make four contributions to the �news versus noise� literature: (I) We provide a new identification scheme which, in population, exactly recovers news and noise shocks. (II) We show that our scheme is not vulnerable to Chahrour and Jurado�s (2018) criticism about the observational equivalence of news and noise shocks, which uniquely holds if the econometrician only observes a fundamental, and agents� expectations about it. By contrast, we show that observational equivalence breaks down when the econometrician observes macroeconomic variables encoding information about the signal (and therefore about news and noise shocks), because they are chosen by agents conditional on all information, including the signal itself. (III) We propose a new econometric methodology for implementing our identification scheme, and we show, via a Monte Carlo study, that it has an excellent performance. (IV) We provide several empirical applications of our identification scheme and econometric methodology. Our results uniformly suggest that, contrary to previous findings in the literature, noise shocks play a minor role in macroeconomic fluctuations.

Pages: 41 pages
Date: 2018-01-01
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: View citations in EconPapers (1)

Downloads: (external link)
https://www.uts.edu.au/sites/default/files/2018-07 ... 0Shocks%E2%88%97.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.uts.edu.au/sites/default/files/2018-07/Identifying%20Noise%20Shocks%E2%88%97.pdf [301 Moved Permanently]--> https://www.uts.edu.au/globalassets/sites/default/files/2018-07/identifying-noise-shocks-.pdf)

Related works:
Journal Article: Identifying noise shocks (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uts:ecowps:41

Access Statistics for this paper

More papers in Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().