What is the effect of the fear of future sovereign default on the economy of the defaulting country? The typical sovereign default model does not address this question. In this paper we wish to explore the possibility that changing expectations about future default themselves can lead to...

An emerging view of business cycles from the news-shock literature suggests that recessions may occur when agents depress their demand for new capital upon the realization that they have accumulated too much conditional on current information. In this paper I use a New Keynesian model with a...

We pursue a novel empirical strategy to identify monetary news shocks and determine their effects on the US economy during the Greenspan-Bernanke era of Federal Reserve Chairmanship. We first construct a monetary policy residual as gap between the observed federal funds rate and a policy rule....

The news-shock literature interprets empirical news-shock identifications as signals about future productivity. Under this view, changes in productivity cause changes in expectations. I investigate an alternative interpretation whereby changes in expectations cause changes in productivity. I...