Forecast Revisions as Instruments for News Shocks

61 Pages Posted: 27 Apr 2022

See all articles by Danilo Cascaldi-Garcia

Danilo Cascaldi-Garcia

Board of Governors of the Federal Reserve System

Date Written: April, 2022


Upon arrival of macroeconomic news, economic agents update their beliefs about the long-run fundamentals of the economy. I show that signals about the agents’ long-run expectations, proxied by the economic outlook revisions of professional forecasters, convey sufficient information to identify the effects of expected future technological changes, or news shocks. A major advantage of this approach from the existing news shock literature is that it does not depend on an empirical measure for technology, or on assumptions about common trends and timing of the technological change. I show that technological news shocks cause a strong anticipation effect in investment and an increase in hours, while there is less evidence of consumption smoothing over time---in line with news-driven business cycle models featuring a key role of financial frictions.

Keywords: News shock, Proxy SVAR, Instrumental variable, Professional forecasts

JEL Classification: E32, E44

Suggested Citation

Cascaldi-Garcia, Danilo, Forecast Revisions as Instruments for News Shocks (April, 2022). International Finance Discussion Paper No. 1341, Available at SSRN: or

Danilo Cascaldi-Garcia (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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