Replication files for 'Belief Shocks and Implications of Expectations about Growth-at-Risk" in the Journal of Applied Econometrics by Maximilian Boeck and Michael Pfarrhofer. Codes are written in R.
Abstract: This paper revisits the question of how shocks to expectations of market participants can cause business cycle fluctuations. We use a vector autoregression to estimate dynamic causal effects of belief shocks which are extracted from nowcast errors about output growth. In a first step, we replicate and corroborate the findings of \citet{enders2021growth}. The second step computes nowcast errors about growth-at-risk at various quantiles. This involves both recovering the quantiles of the nowcast distribution of output growth from the Survey of Professional Forecasters; and, since the true quantiles of output growth are unobserved, estimating them with quantile regressions. We document a lack of distinct patterns in response to shocks arising from nowcasts misjudging macroeconomic risk. Although the differences are statistically insignificant, belief shocks about downside risk seem to produce somewhat sharper business cycle fluctuations.
The attached README explains the structure of the replication files. If you have any questions, please do not hesitate to contact us: maximilian.boeck@fau.de, michael.pfarrhofer@wu.ac.at.
