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News shocks and business cycles

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  • Barsky, Robert B.
  • Sims, Eric R.

Abstract

This paper proposes and implements a novel structural VAR approach to the identification of news shocks about future technology. The news shock is identified as the shock orthogonal to the innovation in current utilization-adjusted TFP that best explains variation in future TFP. A favorable news shock leads to an increase in consumption and decreases in output, hours, and investment on impact – more suggestive of standard DSGE models than of recent extensions designed to generate news-driven business cycles. Though news shocks account for a significant fraction of output fluctuations at medium frequencies, they contribute little to our understanding of recessions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 3 ()
Pages: 273-289

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Handle: RePEc:eee:moneco:v:58:y:2011:i:3:p:273-289

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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