News, Noise and Fluctuations: An Empirical Exploration

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  • 1 January 2009
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      • Published in RePEc
Abstract
We explore this class of models for two reasons. The first is that it appears to capture many of the aspects often ascribed to fluctuations, the role of animal spirits in affecting demand---spirits that we interpret here as coming from a rational reaction to signals about the future---, the role of demand in affecting output in the short run, together with the notion that output eventually returns to its natural level. The second is that it appears to fit the data in a more formal way. More specifically, it offers an interpretation of structural VARs based on the assumption of two major types of shocks, shocks with permanent effects, and shocks with transitory effects on activity.

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