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Identifying noise shocks: a VAR with data revisions

Masolo, Riccardo M. and Paccagnini, Alessia (2015) Identifying noise shocks: a VAR with data revisions. CFM discussion paper series (CFM-DP2015-10). Centre For Macroeconomics, London, UK.

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Abstract

We propose a new VAR identification strategy to study the impact of noise shocks on aggregate activity. We do so exploiting the informational advantage the econometrician has, relative to the economic agent. The latter, who is uncertain about the underlying state of the economy, responds to the noisy early data releases. The former, with the benefit of hindsight, has access to data revisions as well, which can be used to identify noise shocks. By using a VAR we can avoid making very specific assumptions on the process driving data revisions. We rather remain agnostic about it but make our identification strategy robust to whether data revisions are driven by noise or news. Our analysis shows that a surprising report of output growth numbers delivers a persistent and hump-shaped response of real output and unemployment. The responses are qualitatively similar but an order of magnitude smaller than those to a demand shock. Finally, our counterfactual analysis supports the view that it would not be possible to identify noise shocks unless different vintages of data are used.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2015 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 14 Dec 2017 11:46
Last Modified: 23 May 2019 23:21
URI: http://eprints.lse.ac.uk/id/eprint/86314

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