Today at the OxCARRE Seminar: Rabah Arezki on News Shocks in open economies

Today presented at OxCARRE by Rabah Arezki [img.org]

News Shocks in Open Economies: Evidence from Giant Oil Discoveries
co-authored with Valerie A. Ramey and Liugang Sheng

Abstract:

This paper explores the effect of news shocks on the current account and other macro variables using plausibly exogenous variation in the timing of worldwide giant oil discoveries as a directly observable measure of news shocks about future output ̶ the delay between a discovery and production is on average 4-6 years. We first present a model predicting differential effects for news and materialized shocks on the current account and other macroeconomic variables. Our empirical estimates are qualitatively in line with the predictions of the model. After an oil discovery, the current account and saving rate become negative for about 5 years and then turn positive. Investment rises robustly in the short-run, while GDP does not rise until after 5 years. In contrast to some findings from the news literature, we find that employment falls in response to news.

Available here [rice.edu]