A structural Factor-Augmented VAR model is used to evaluate the role of ``news'' shocks in generating the business cycle. We find that (i) existing small-scale VAR models are affected by ``non-fundamentalness'' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a smaller role in explaining the business cycle than previously found in the literature; (iii) their effects are essentially in line with what predicted by standard theories; (iv) a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology.

No news in business cycles

Sala, Luca
2014

Abstract

A structural Factor-Augmented VAR model is used to evaluate the role of ``news'' shocks in generating the business cycle. We find that (i) existing small-scale VAR models are affected by ``non-fundamentalness'' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a smaller role in explaining the business cycle than previously found in the literature; (iii) their effects are essentially in line with what predicted by standard theories; (iv) a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology.
2014
2013
Forni, Mario; Gambetti, Luca; Sala, Luca
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3856909
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