{
  "title": "New Shocks and Asset Price Volatility in General Equilibrium",
  "publication": "IMF Working Papers, May 1, 2011",
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  "summary": "We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Study focus: equity price volatility in general equilibrium with news shocks about future productivity and monetary policy.\n- Key contrast: West (1988) shows that in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility.\n- Main result: Introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions.\n- Mechanism highlighted: In general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks, which can offset the volatility-reducing effect found in partial equilibrium.\n- Empirical implication: Neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices."
    },
    {
      "heading": "Model and conceptual points",
      "content": "- Model class: canonical dynamic stochastic general equilibrium model with news shocks about future productivity and monetary policy.\n- Comparison framework: partial equilibrium present discounted value model (as in West (1988)) versus general equilibrium where endogenous cash flows can change."
    },
    {
      "heading": "Policy and empirical implications",
      "content": "- Empirical estimation risk: Failing to include policy news shocks may bias estimated effects of monetary policy shocks on asset prices.\n- Policy relevance: Accounting for news shocks, including policy announcements, is important when interpreting asset price responses to monetary policy.\n\n---\n\n Content in this bundle\n\n- wp11110\n  - wp11110 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp11110 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/new-shocks-and-asset-price-volatility-in-general-equilibrium-24839"
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    "Authors: Alessandro Rebucci, Akito Matsumoto, Pietro Cova, Massimiliano Pisani",
    "Published: May 1, 2011",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781455261390.001",
    "Study focus: equity price volatility in general equilibrium with news shocks about future productivity and monetary policy.",
    "Key contrast: West (1988) shows that in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility.",
    "Main result: Introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions.",
    "Mechanism highlighted: In general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks, which can offset the volatility-reducing effect found in partial equilibrium.",
    "Empirical implication: Neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.",
    "Model class: canonical dynamic stochastic general equilibrium model with news shocks about future productivity and monetary policy.",
    "Comparison framework: partial equilibrium present discounted value model (as in West (1988)) versus general equilibrium where endogenous cash flows can change.",
    "Empirical estimation risk: Failing to include policy news shocks may bias estimated effects of monetary policy shocks on asset prices.",
    "Policy relevance: Accounting for news shocks, including policy announcements, is important when interpreting asset price responses to monetary policy.",
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