Advanced Search
MyIDEAS: Login to save this book chapter or follow this series

Noisy Business Cycles

In: NBER Macroeconomics Annual 2009, Volume 24

Contents:

Author Info

  • George-Marios Angeletos
  • Jennifer La'O

Abstract

This paper investigates a real-business-cycle economy that features dispersed information about the underlying aggregate productivity shocks, taste shocks, and, potentially, shocks to monopoly power. We show how the dispersion of information can (i) contribute to significant inertia in the response of macroeconomic outcomes to such shocks; (ii) induce a negative short-run response of employment to productivity shocks; (iii) imply that productivity shocks explain only a small fraction of high-frequency fluctuations; (iv) contribute to significant noise in the business cycle; (v) formalize a certain type of demand shocks within an RBC economy; and (vi) generate cyclical variation in observed Solow residuals and labor wedges. Importantly, none of these properties requires significant uncertainty about the underlying fundamentals: they rest on the heterogeneity of information and the strength of trade linkages in the economy, not the level of uncertainty. Finally, none of these properties are symptoms of inefficiency: apart from undoing monopoly distortions or providing the agents with more information, no policy intervention can improve upon the equilibrium allocations.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/chapters/c11802.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in:

  • Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2010. "NBER Macroeconomics Annual 2009, Volume 24," NBER Books, National Bureau of Economic Research, Inc, number acem09-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11802.

    Handle: RePEc:nbr:nberch:11802

    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Other versions of this item:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Reis, Ricardo, 2005. "Inattentive Producers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5393, C.E.P.R. Discussion Papers.
    2. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(4), pages 1295-1328, November.
    3. Adam, Klaus, 2007. "Optimal monetary policy with imperfect common knowledge," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(2), pages 267-301, March.
    4. Yulei Luo, 2005. "Consumption Dynamics under Information Processing Constraints," Macroeconomics, EconWPA 0505011, EconWPA, revised 03 Jun 2005.
    5. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    6. Marvin Goodfriend & Robert G. King, 2001. "The Case for Price Stability," NBER Working Papers 8423, National Bureau of Economic Research, Inc.
    7. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," NBER Working Papers 12537, National Bureau of Economic Research, Inc.
    8. Van Nieuwerburgh, Stijn & Veldkamp, Laura, 2006. "Learning asymmetries in real business cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(4), pages 753-772, May.
    9. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
    10. Bartosz Mackowiak & Mirko Wiederholt, 2004. "Optimal Sticky Prices under Rational Inattention," SFB 649 Discussion Papers SFB649DP2005-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Jul 2005.
    11. repec:ste:nystbu:08-21 is not listed on IDEAS
    12. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6506, C.E.P.R. Discussion Papers.
    13. Maćkowiak, Bartosz & Wiederholt, Mirko, 2011. "Business cycle dynamics under rational inattention," Working Paper Series, European Central Bank 1331, European Central Bank.
    14. Manuel Amador & Pierre-Olivier Weill, 2008. "Learning from Prices: Public Communication and Welfare," NBER Working Papers 14255, National Bureau of Economic Research, Inc.
    15. Moscarini, Giuseppe, 2004. "Limited information capacity as a source of inertia," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(10), pages 2003-2035, September.
    16. Jordi Galí & Pau Rabanal, 2005. "Technology Shocks and Aggregate Fluctuations: How Well Does the Real Business Cycle Model Fit Postwar U.S. Data?," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 225-318 National Bureau of Economic Research, Inc.
    17. Venky Venkateswaran & Christian Hellwig, 2009. "Setting The Right Prices for the Wrong Reasons," 2009 Meeting Papers, Society for Economic Dynamics 260, Society for Economic Dynamics.
    18. Ben S. Bernanke & Julio J. Rotemberg, 1997. "Editorial in "NBER Macroeconomics Annual 1997, Volume 12"," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 1-6 National Bureau of Economic Research, Inc.
    19. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series, European Central Bank 0955, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. George-Marios Angeletos & Luigi Iovino & Jennifer La'O, 2011. "Cycles, Gaps, and the Social Value of Information," Levine's Working Paper Archive 786969000000000293, David K. Levine.
    2. Forni, Mario & Gambetti, Luca & Lippi, Marco & Sala, Luca, 2013. "Noisy News in Business cycles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9601, C.E.P.R. Discussion Papers.
    3. Forni, Mario & Gambetti, Luca & Lippi, Marco & Sala, Luca, 2013. "Noise Bubbles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9532, C.E.P.R. Discussion Papers.
    4. Amberger, Korie, 2013. "The Role of Capital on Noise Shocks," MPRA Paper 46483, University Library of Munich, Germany.
    5. F. Pancotto & G. Pignataro & D. Raggi, 2014. "Higher order beliefs and the dynamics of exchange rates," Working Papers wp957, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Rousakis, Michael, 2012. "Expectations and Fluctuations : The Role of Monetary Policy," The Warwick Economics Research Paper Series (TWERPS) 984, University of Warwick, Department of Economics.
    7. Luo, Yulei & Nie, Jun & Young, Eric R., 2012. "Robustness, information–processing constraints, and the current account in small open economies," Journal of International Economics, Elsevier, Elsevier, vol. 88(1), pages 104-120.
    8. Luo, Yulei & Nie, Jun & Young, Eric R., 2014. "Robust control, informational frictions, and international consumption correlations," European Economic Review, Elsevier, Elsevier, vol. 67(C), pages 1-27.
    9. Andrew Williams, 2014. "The effect of transparency on output volatility," Economics of Governance, Springer, Springer, vol. 15(2), pages 101-129, May.
    10. George-Marios Angeletos & Jennifer La'O, 2009. "Incomplete Information, Higher-Order Beliefs and Price Inertia," NBER Working Papers 15003, National Bureau of Economic Research, Inc.
    11. Tille, Cédric & van Wincoop, Eric, 2014. "Solving DSGE portfolio choice models with dispersed private information," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 40(C), pages 1-24.
    12. Michael Rousakis, 2013. "Expectations and Fluctuations: The Role of Monetary Policy," 2013 Meeting Papers, Society for Economic Dynamics 681, Society for Economic Dynamics.
    13. Graham, Liam & Wright, Stephen, 2010. "Information, heterogeneity and market incompleteness," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(2), pages 164-174, March.
    14. Ernesto Pastén, 2012. "Rational Inattention, Multi-Product Firms and the Neutrality of Money," Working Papers Central Bank of Chile, Central Bank of Chile 664, Central Bank of Chile.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:11802. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.