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491. No News in Business Cycles
by Mario Forni, Luca Gambetti,Luca Sala

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
uctuations are explained by shocks unrelated to technology.

JEL classification: C32, E32, E62.

Keywords: Factor-augmented VAR, news shocks, invertibility, fundamentalness.

Last updated September 18, 2013