Identifying noise shocks

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 18-07

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benati, Luca
• Event: Veröffentlichung
• (who): University of Bern, Department of Economics
• (where): Bern
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/204903
• Last update: 10.03.2025, 11:44 AM CET