We study the effects of government spending by using a structural, large dimensional, dynamic factor model. We find that the government spending shock is non-fundamental for the variables commonly used in the structural VAR literature, so that its impulse response functions cannot be...

We derive necessary and sufficient conditions under which a set of variables is informationally sufficient, i.e. it contains enough information to estimate the structural shocks with a VAR model. Based on such conditions, we suggest a procedure to test for informational sufficiency. Moreover, we...

In a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced...

We introduce noisy information into a standard present value stock price model. Agents receive a noisy signal about the structural shock driving future dividend variations. The resulting equilibrium stock price includes a transitory component — the "noise bubble" — which can be responsible...

We identify government spending news and surprise shocks using a novel identification based on the Survey of Professional Forecasters. News shocks lead to an increase of the interest rate, a real appreciation of US dollar and a worsening of the trade balance. The opposite is found for the...

This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to...

Does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the necessary adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price...

We estimate the effects of fiscal policy on the labor market in US data. An increase in government spending of 1 percent of GDP generates output and unemployment multipliers respectively of about 1.2 per cent (at one year) and 0.6 percentage points (at the peak). Each percentage point increase...

We lay out a tractable model for fiscal and monetary policy analysis in a currency union, and analyse its implications for the optimal design of such policies. Monetary policy is conducted by a common central bank, which sets the interest rate for the union as a whole. Fiscal policy is...

Government spending at the zero lower bound (ZLB) is not necessarily welfare enhancing, even when its output multiplier is large. When government spending provides direct utility to the household, its optimal level is at most 0.5-1 percent of GDP for recessions of -4 percent; the numbers are...