News Shocks across Countries: An Empirical Investigation

33 Pages Posted: 27 May 2020

See all articles by Miguel Acosta-Henao

Miguel Acosta-Henao

CUNY Graduate Center

Marius Mihai

John Carroll University - Boler School of Business; John Carroll University - Boler School of Business

Date Written: April 20, 2020

Abstract

We estimate the role of news shocks to total factor productivity, foreign interest rates and commodity terms of trade in explaining the variance of output and other macro aggregates in a large sample of countries. To correct for the small-sample bias of the variance decomposition estimates we develop a Bootstrap-after-Bootstrap method. We find that the mean difference of variance share of output explained by news shocks between developing and developed countries is: I) Negligible for news shocks to total factor productivity. II) Positive for news shocks to foreign interest rates (6 p.p.) and to commodity terms of trade (8.3 p.p.). Using cross-sectional data, we find that countries with less financial development have a larger share of output variance explained by news shocks to foreign interest rates, and countries with higher total trade of commodities to output ratio and less developed financial markets exhibit a larger share of output variance explained by news shocks to commodity terms of trade. These results suggest that to study the role of news shocks in the economy, one-sector models with only shocks to total factor productivity are not adequate, and that there must be a structural distinction regarding financial markets' development when modeling developing countries as opposed to developed in a general equilibrium framework.

Keywords: Informal sector, Law enforcement, Tax policy

JEL Classification: E26, E62, F41, O17

Suggested Citation

Acosta-Henao, Miguel and Mihai, Marius, News Shocks across Countries: An Empirical Investigation (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3588030 or http://dx.doi.org/10.2139/ssrn.3588030

Miguel Acosta-Henao (Contact Author)

CUNY Graduate Center ( email )

New York, NY
United States
9293431946 (Phone)

Marius Mihai

John Carroll University - Boler School of Business ( email )

University Heights, OH 44118-4581
United States

John Carroll University - Boler School of Business ( email )

CLEVELAND, OH 44106
United States
2158340451 (Phone)

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