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News and Policy Foresight in a Macro-Finance Model of the U.S.

50 Pages Posted: 6 Apr 2011  

Cristian Badarinza

National University of Singapore (NUS)

Emil Margaritov

Goethe University Frankfurt - House of Finance (HoF)

Date Written: March 9, 2011

Abstract

We study the effects of information shocks on macroeconomic and term structure dynamics in an estimated medium-scale DSGE model for the US economy. We consider news about total factor productivity and investment-specific technology, as well as foresight about monetary policy. Our empirical investigation confirms the findings of previous studies on the limited role played by productivity news in this class of models. In contrast, we uncover a non-trivial role for investment-specific news and anticipated monetary policy shocks not only in the historical and variance decomposition of real economic variables but also for the overall dynamic behavior of the term structure of interest rates. We also document substantial qualitative differences in the dynamic responses of the macroeconomy and the bond yield term structure to anticipated and surprise structural and policy innovations.

Keywords: News, Policy Foresight, Term Structure, DSGE Model

JEL Classification: E32, E43, E52

Suggested Citation

Badarinza, Cristian and Margaritov, Emil, News and Policy Foresight in a Macro-Finance Model of the U.S. (March 9, 2011). ECB Working Paper No. 1313. Available at SSRN: https://ssrn.com/abstract=1781726

Cristian Badarinza (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Emil Margaritov

Goethe University Frankfurt - House of Finance (HoF) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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