Stock Prices, News, and Economic Fluctuations: Comment

44 Pages Posted: 6 Apr 2013

Date Written: January 1, 2013

Abstract

Beaudry and Portier (American Economoc Review, 2006) propose an identification scheme to study the effects of news shocks about future productivity in Vector Error Correction Models (VECM). This comment shows that their methodology does not have a unique solution, when applied to their VECMs with more than two variables. The problem arises from the interplay of cointegration assumptions and long-run restrictions imposed by Beaudry and Portier (2006).

Keywords: Vector Error Correction Model, long-run restrictions, news shocks

JEL Classification: G12, E32, E44

Suggested Citation

Kurmann, Andre and Mertens, Elmar, Stock Prices, News, and Economic Fluctuations: Comment (January 1, 2013). FEDS Working Paper No. 2013-08, Available at SSRN: https://ssrn.com/abstract=2244506 or http://dx.doi.org/10.2139/ssrn.2244506

Andre Kurmann

Drexel University ( email )

School of Economics
3141 Chestnut St
Philadelphia, PA 19104
United States

Elmar Mertens (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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