In the current literature uncertainty about the future course of the economy is identified as a possible driver of business cycle fluctuations. In fact, uncertainty surrounds the movements of all economic variables which gives rise to a monitoring problem. We identify the different dimensions of...

Dynamic factor models and external instrument identification are two recent advances in the empirical macroeconomic literature. This paper combines the two approaches in order to study the effects of monetary policy shocks. I use this novel framework to re-examine the effects found by Forni and...