Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

UK News Shocks and Business Cycles

1,539 views

Published on

Jorge Meliveo and Willy Scherrieble
Barcelona GSE Master Project
Master Program in Macroeconomic Policy and Financial Markets

Published in: Economy & Finance
  • Be the first to comment

UK News Shocks and Business Cycles

  1. 1. UK News Shocks and Business Cycles Barcelona Graduate School of Economics Jorge Meliveo and Willy Scherrieble July 14, 2015 Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  2. 2. Motivation Technology shocks Beaudry, P. and Portier, F. (2006) - Stock Prices, News, and Economic Fluctuations.” AER Explain 50% and 70% of variation in GDP and consumtpion Replicates positive co-movement of aggregate variables Several issues RBC model predicts: consumption ↑, labor ↓, output ↓ Barsky and Sims (2011): Novel identification Forni, Gambetti, Sala (2014): Non-fundamentalness Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  3. 3. Aim of the Paper All studies focus on the US economy Kamber, Theodoridis and Thoenissen (2014): Australia, Canada, New Zealand and the UK We estimate effect of news shocks in a new institutional setting: the United Kingdom We use two different models: A VAR and a FAVAR - to account for non-fundamentalness Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  4. 4. Model and Identification Baseline VAR model: yt = TFPt SPt Ct GDPt Ht FAVAR model: yt = TFPt SPt Ct GDPt Ht Ft Identification: Similar to Barski and Sims (2011) at = at−1 + t−j + ηt SP-shock has no contemporaneous effect on TFP, but explains the maximal amount of variation in TFP at a 40-quarter horizon. Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  5. 5. Model and Identification (Cont’d) 1. Structural VAR with partial identification: yt = C(L)Sγγ S−1 t 2. Maximization γ∗ = arg max Ω1,2(40) = 40 τ=0 C(L)1,τ Sγγ S C(L)1,τ 40 τ=0 C(L)1,τ ΣC(L)1,τ s.t S(1, j) = 0 ∀ j > 1 γ(1, 1) = 0 γ γ = 1 Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  6. 6. Estimation and Data Dataset 81 quarterly series for UK from 1989-III to 2009-II National production, household consumption, deflators, money series, asset prices, soft indicators and labour market Sources: ONS, BoE, Eurostat, KTT (2014) TFP series Estimation OLS in levels with two lags (AIC information criterion) Kilian (1998) confidence bands via bootstrapping Factors are obtained by means of the PCE Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  7. 7. Results VAR model Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  8. 8. Results FAVAR model Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  9. 9. Results: Introducing more than 2 factors does not change the results Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  10. 10. Results (Cont’d) Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  11. 11. Robustness Number of lags: three or four Additional variables: Investment Different horizons: 60 and 20 quarters Barsky and Sims (2011): Maximizing w.r.t all horizons Different maximization procedures Numerical optimization methods Monte Carlo Simulation Uhlig (2005): principal components analysis Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  12. 12. Conclusion and Extensions Conclusion News shock depicts negative co-movement Smaller fraction of output explained than in BP (2006) Enlarging the information affects the results Results are in line with BS (2011) and FGS (2014) for US In contrast to findings of KTT (2014) for the UK Extensions Extend TFP series or estimate with Bayesian techniques Further tests for non-fundamentalness or number of factors Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles
  13. 13. References Barsky, B. and E. Sims (2011) “News shocks and business cycles.“ Journal of Monetary Economics, 58(3): 273:289 Beaudry, P. and F. Portier (2006) “Stock Prices, News, and Economic Fluctuations.“ AER, 96(4): 1293-1307 Forni, M., Gambetti, L. and L. Sala (2014) “No News in Business Cycle.“ The Economic Journal, 124(581): 1168-1191 Kamber, G., Konstantinos, T. and C. Thoenissen (2014) ”News-Driven Business Cycles in Small Open Economies,” WP, University of Sheffield Kilian, L. (1998) Small-Sample Condence Intervals For Impulse Response Func- tions, The Review of Economics and Statistics Jorge Meliveo and Willy Scherrieble UK News Shocks and Business Cycles

×