We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of...

Financial shocks generate a protracted and quantitatively important effect on real economic activity and financial markets only if the shocks are both negative and large. Otherwise, their role is quite modest. Financial shocks have become more important for economic fluctuations after the 2000...

The economic upswing in Germany continues, although the expansion loses some steam. Compared to our summer forecast, we reduced our expectations for GDP growth by 0.1 and 0.3 percentage points in the current and next year, respectively, to 1.9 percent (2018) and 2.0 percent (2019). So for now,...

In a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced...

We introduce limited information in monetary policy. Agents receive signals from the central bank revealing new information ("news") about the future evolution of the policy rate before changes in the rate actually take place. However, the signal is disturbed by noise. We employ a non-standard...

A structural, large dimensional factor model is used to evaluate the role of "news" shocks (shocks with a delayed effect on productivity) 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...

We study the dynamic link between economic news coverage and the macroeconomy. We construct two measures of media coverage of bad and good unemployment figures based on three major US newspapers. Using nonlinear time series techniques, we document three facts: (i) there is no significant...