We investigate the role of "noise" shocks as a source of business cycle fl uctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of...

A structural Factor-Augmented VAR model is used to evaluate the role of "news" shocks in generating the business cycle. We find that (i) existing small-scale VAR models are affected by "non-fundamentalness" and therefore fail to recover the correct shock and impulse response functions; (ii) news...

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...

We analyse the panel of the Greenbook forecasts (sample 1970-1996) and a large panel of monthly variables for the US (sample 1970-2003) and show that the bulk of dynamics of both the variables and their forecasts is explained by two shocks. Moreover, a two factor model which exploits, in real...

Equilibrium business cycle models have typically less shocks than variables. As pointed out by Altug, 1989 and Sargent, 1989, if variables are measured with error, this characteristic implies that the model solution for measured variables has a factor structure. This paper compares estimation...