Short-Run and Long-Run News: Evidence from Giant Commodity Discoveries

The bulk of the news shocks literature focuses on shocks materializing after four or five quarters, with limited evidence on news about longer-run events. We build a new dataset of discovery and production start dates for a wide range of giant commodity discoveries worldwide from 1960 to 2012. Standard open economy models match the empirical responses of short-run news but fail in the case of long-run news. Incorporating financial frictions in the form of collateral constraints is crucial for capturing the dynamics implied by long-run news. We also provide direct evidence on the role of these frictions.