News Shocks Across Countries1

55 Pages Posted: 14 Dec 2022


We estimate the role of news shocks to TFP, foreign interest rates (FIR) and commodity terms of trade (CToT) in explaining the variance of output and other macro aggregates across countries. To correct for small-sample bias in the variance decomposition estimates, we develop a Bootstrap-after-Bootstrap method and 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 TFP. II) Positive for news shocks to FIR and to CToT. Using cross-sectional data, we find that countries with less financial development have a larger share of output variance explained by news shocks to FIR, and countries with less developed financial derivatives markets exhibit a larger share of output variance explained by news shocks to CToT. A two-sector small open economy model with non-financially included households and hedging in commodity prices rationalizes these facts.

Keywords: News shocks, financial markets, Business cycles

Suggested Citation

Acosta-Henao, Miguel and Mihai, Marius, News Shocks Across Countries1. Available at SSRN: or

Miguel Acosta-Henao (Contact Author)

CUNY Graduate Center ( email )

New York, NY
United States
9293431946 (Phone)

Marius Mihai

Widener University ( email )

3800 Vartan Way
PO Box 69381
Harrisburg, PA 17106-9381
United States

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