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We assess the contribution of "undue optimism" (Pigou) to short-run fluctuations. In our analysis, optimism pertains to total factor productivity which determines economic activity in the long run, but is not contemporaneously observed by market participants. In order to recover optimism shocks...
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. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in …, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un …
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stress). Working with a VAR framework and a set-identification strategy which focuses on - but it is not limited to …
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We identify total factor productivity (TFP) news shocks using standard VAR methodology and document a new stylized fact …
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step further by integrating the narrative approach with an empirical VAR analysis, distinguishing between slowdown and …
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