We obtain the following results. (ii) Both supply and demand shocks are important sources of fluctuations; supply prevails for GDP, while demand prevails for employment and information. (ii) Policy matters: Both monetary and fiscal policy shocks have sizeable effects on output and prices, with...

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 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...

We estimate the response of stock prices to exogenous monetary policy shocks using a vector-autoregressive model with time-varying parameters. Our evidence points to protracted episodes in which, after a a short-run decline, stock prices increase persistently in response to an exogenous...

This paper investigates the effects of government spending on the real exchange rate and the trade balance in the US using a new VAR identification procedure based on spending forecast revisions. I find that the real exchange rate appreciates and the trade balance deteriorates after a government...

This paper proposes an empirical framework to study the effects of a policy regime change defined as an unpredictable and permanent change in the policy parameters. In particular I show how to make conditional forecast and perform impulse response functions and counterfactual analysis. As an...

We study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to...

We address this question by examining the conditional dynamics of inflation and output growth in response to markup shocks for 14 industrialized countries. Markup shocks create a trade-off between output gap and inflation stabilization purposes, and the theory predicts that conditional on such...

This paper investigates the effects of fiscal policy on the trade balance using a structural factor model. A fiscal policy shock worsens the trade balance and produces an appreciation of the domestic currency but the effects are quantitatively small. The findings match the theoretical...