This paper explores the effect of news shocks on the current account and other macroeconomic
variables using 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 to 6 years.
We first present a two-sector small open economy model in order to predict the responses of
macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil
discoveries on a large panel of countries. Our empirical estimates are consistent with the
predictions of the model. After an oil discovery, the current account and saving rate decline for
the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon
after the news arrives, while GDP does not increase until after 5 years. Employment rates fall
slightly for a sustained period of time.