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No News in Business Cycles

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  • Forni, Mario
  • Gambetti, Luca
  • Sala, Luca

Abstract

This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations is explained by shocks unrelated to technology.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8274.

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Date of creation: Feb 2011
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Handle: RePEc:cpr:ceprdp:8274

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Keywords: fundamentalness; invertibility; news shocks; structural factor model;

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References

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Citations

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Cited by:
  1. Paul Beaudry & Franck Portier, 2014. "News Driven Business Cycles: Insights and Challenges," 2014 Meeting Papers, Society for Economic Dynamics 289, Society for Economic Dynamics.
  2. Mario Forni & Luca Gambetti & Luca Sala, 2011. "No News in Business Cycles," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 862.11, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Benjamin Born & Alexandra Peter & Johannes Pfeifer, 2011. "Fiscal News and Macroeconomic Volatility," Bonn Econ Discussion Papers, University of Bonn, Germany bgse08_2011, University of Bonn, Germany.
  4. Roberto perotti, 2011. "Expectations and Fiscal Policy: An Empirical Investigation," Working Papers 429, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Seymen, Atılım, 2013. "Sequential identification of technological news shocks," ZEW Discussion Papers 13-111, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Fabio Milani & Ashish Rajrhandari, 2012. "Observed Expectations, News Shocks, and the Business Cycle," Working Papers 121305, University of California-Irvine, Department of Economics.

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