News and why it is not shocking: the role of micro-foundations

Le, Vo Phuong Mai ORCID: https://orcid.org/0000-0003-3374-9694, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947 and Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X 2020. News and why it is not shocking: the role of micro-foundations. Journal of International Financial Markets, Institutions and Money 66 , 101199. 10.1016/j.intfin.2020.101199

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Abstract

A number of studies have found that news shocks account for a large part of the aggregate fluctuations of the main macroeconomic variables. We show that when taking rational expectations into consideration there is a limit on the size of the variance of the news shocks, which has not been considered in the literature. We o¤er an explanation to why this restriction should be imposed and show, with an empirical example from a recent paper, that if you do impose the rational expectations restriction the importance of news is drastically reduced.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics) Advanced Research Computing @ Cardiff (ARCCA)
Publisher:	Elsevier
ISSN:	1042-4431
Date of First Compliant Deposit:	3 March 2020
Date of Acceptance:	28 February 2020
Last Modified:	23 Nov 2024 01:45
URI:	https://orca.cardiff.ac.uk/id/eprint/130103

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