We highlight how detrending within Structural Vector Autoregressions (SVAR) is directly linked to the shock identification. Consequences of trend misspecification are investigated using a prototypical Real Business Cycle model as the Data Generating Process. Decomposing the different sources of...

This paper studies how monetary policy should respond to news about an oil discovery, using a workhorse New Keynesian model. Good news about future production can create a recession today under exchange rate pegs and a simple Taylor rule, as seen in practice. This is explained by forward-looking...