Timothée Demont: timothee.demont[at]univ-amu.fr
Roberta Ziparo: rziparo[at]gmail.com
News shocks have both a permanent, first-moment effect on point expectations and a temporary, second-moment effect on their confidence bands. Large news shocks increase uncertainty, thus reducing the effects of good news and enlarging the effects of bad news in the short run. The Volker recession and the great recession were exacerbated by the uncertainty effects of news. By contrast, small news shocks reduce uncertainty and increase output in the short run.