New paper : On The Quantitative Importance of Non-fundamentalness for News Shocks

manufacturingbwI posted on my “current work” page a new paper with Paul Beaudry  “On The Quantitative Importance of Non-fundamentalness for News Shocks“. As written in the abstract,

It has been rightly suggested (see e.g. Forni and Gambetti [2014] and Forni, Gambetti, and Sala [2014]) that the identification of news shocks can be subject to non- fundamentalness. In this note we first illustrate why non-fundamentalness is not an either/or question, but is a quantitative issue which can be more or less severe. Second, we use the approach suggested by Forni, Gambetti, and Sala [2014] to re-examine whether non-fundamentalness is likely an important problem for the identification of news shocks. Using our preferred strategy for identifying news shocks, we find that non-fundamentalness is quantitatively unimportant and that news shocks continue to generate significant business cycle type fluctuations when adjust the estimating procedure to take into account the potential non-fundamentalness issue.

Key Words are News, Business Cycles, Non-Fundamentalness.

JEL Classification code is  E3.

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