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The analytics of technology news shocks

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  • Dupor, Bill
  • Mehkari, M. Saif

Abstract

This paper constructs several models in which, unlike the standard neoclassical growth model, positive news about future technology generates an increase in current consumption, hours and investment. These models are said to exhibit procyclical news shocks. We find that all models that exhibit procyclical news shocks in our paper have two commonalities. There are mechanisms to ensure that: (I) consumption does not crowd out investment, or vice versa; (II) the benefit of forgoing leisure in response to news shocks outweighs the cost. Among the models we consider, we believe, one model holds the greatest potential for explaining procyclical news shocks. Its critical assumption is that news of the future technology also illuminates the nature of this technology. This illumination in turn permits economic actors to invest in capital that is forward-compatible, i.e. adapted to the new technology. On the technical side, our paper reintroduces the Laplace transform as a tool for studying dynamic economies analytically. Using Laplace transforms we are able to study and prove results about the full dynamics of the model in response to news shocks.

Suggested Citation

  • Dupor, Bill & Mehkari, M. Saif, 2014. "The analytics of technology news shocks," Journal of Economic Theory, Elsevier, vol. 153(C), pages 392-427.
    • Handle: RePEc:eee:jetheo:v:153:y:2014:i:c:p:392-427
    DOI: 10.1016/j.jet.2014.07.005
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    Cited by:

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    4. Christopher M. Gunn, 2018. "Overaccumulation, Interest, and Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(2-3), pages 479-511, March.
    5. Qureshi Hammad, 2014. "News shocks and learning-by-doing," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-36, January.

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    More about this item

    Keywords

    Business cycles; News shocks; Laplace transforms;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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