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

Le, Vo Phuong Mai, Meenagh, David and Minford, Patrick 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)
Publisher: Elsevier
ISSN: 1042-4431
Date of First Compliant Deposit: 3 March 2020
Date of Acceptance: 28 February 2020
Last Modified: 31 Aug 2020 15:27
URI: http://orca-mwe.cf.ac.uk/id/eprint/130103

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