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No News in Business Cycles

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  • Mario Forni
  • Luca Gambetti
  • Luca Sala

Abstract

A structural Factor-Augmented VAR model is used to evaluate the role of "news" shocks in generating the business cycle. We find that (i) existing small-scale VAR models are affected by "non-fundamentalness" and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a smaller role in explaining the business cycle than previously found in the literature; (iii) their effects are essentially in line with what predicted by standard theories; (iv) a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology. JEL classification: C32, E32, E62. Keywords: Factor-augmented VAR, news shocks, invertibility, fundamentalness.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 491.

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Date of creation: 2013
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Handle: RePEc:igi:igierp:491

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Cited by:
  1. Seymen, Atılım, 2013. "Sequential identification of technological news shocks," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-111, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Born, Benjamin & Peter, Alexandra & Pfeifer, Johannes, 2013. "Fiscal news and macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(12), pages 2582-2601.
  3. Mario Forni & Luca Gambetti & Luca Sala, 2011. "No news in business cycles," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 063, University of Modena and Reggio E., Dept. of Economics.
  4. Fabio Milani & Ashish Rajrhandari, 2012. "Observed Expectations, News Shocks, and the Business Cycle," Working Papers 121305, University of California-Irvine, Department of Economics.
  5. Paul Beaudry & Franck Portier, 2014. "News Driven Business Cycles: Insights and Challenges," 2014 Meeting Papers, Society for Economic Dynamics 289, Society for Economic Dynamics.
  6. Roberto perotti, 2011. "Expectations and Fiscal Policy: An Empirical Investigation," Working Papers, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University 429, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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