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Journal Article

News Shocks, Information Flows and SVARs

Patrick Fève and Ahmat Jidoud
Annals of Economics and Statistics
No. 113/114, SPECIAL ISSUE ON THE ECONOMICS OF TAXATION (June 2014), pp. 293-307
Published by: GENES on behalf of ADRES
DOI: 10.15609/annaeconstat2009.113-114.293
Stable URL: http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.293
Page Count: 17
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News Shocks, Information Flows and SVARs
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Abstract

This paper assesses SVARs as relevant tools at identifying the dynamic effects of news shocks. Because of the misalignment between the econometrician and private agents' information sets resulting from foresight, the dynamic responses identified from SVARs using either long-run and short-run restrictions are biased. However, the bias vanishes when news shocks account for the bulk of fluctuations in the economy. Furthermore, under this condition, the two identified shocks have a correlation close to unity, validating the sequential identification approach adopted by Beaudry and Portier [2006]. JEL: C32, C52, E32. / KEY WORDS: News Shocks, Information Flows, Non–fundamentalness, SVARs, Identification.

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