We propose a new approach to analyze economic shocks. Our new procedure identifies economic shocks as exogenous shifts in a function; hence, we call them “ functional shocks.” We show how to identify such shocks and how to trace their effects in the economy via VARs using “ ...

Recently, it has been suggested that macroeconomic forecasts from estimated DSGE models tend to be more accurate out-of-sample than random walk forecasts or Bayesian VAR forecasts. Del Negro and Schorfheide(2013) in particular suggest that the DSGE model forecast should become the benchmark for...