New measure validates theory of news shocks, impacts technology long-term.
The article explores how to use VAR models to validate DSGE models by measuring how well they capture specific shocks. The researchers found that VAR techniques can help recover shocks accurately, even when the structural representation is complex. They applied this method to validate a theory of news shocks, which performed well for most variables but underestimated the long-term effects of technology news on TFP.