International Finance Discussion Papers (IFDP)
November 2018 (Revised March 2020)
News and Uncertainty Shocks
Danilo Cascaldi-Garcia and Ana Beatriz Galvao
We provide novel evidence that technological news and uncertainty shocks, identified one at a time using VAR models as in the literature, are correlated; that is, they are not truly structural. We then proceed by proposing an identification scheme to disentangle the effects of news and financial uncertainty shocks. We find that by removing uncertainty effects from news shocks, the positive responses of economic activity to news shocks are strengthened in the short term; and that the negative responses of activity to financial uncertainty shocks are deepened in the medium term as `good uncertainty' effects on technology are purged.
Original paper: PDF | Accessible materials (.zip)
Keywords: forecasting error variance, structural VAR, news shocks, uncertainty shocks
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