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No news in business cycles

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  • Mario Forni

    ()

  • Luca Gambetti

    ()

  • Luca Sala

    ()

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 flucuations is explained by shocks unrelated to technology.

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File URL: http://www.recent.unimore.it/wp/RECent-wp63.pdf
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Bibliographic Info

Paper provided by University of Modena and Reggio E., Dept. of Economics in its series Center for Economic Research (RECent) with number 063.

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Length: pages 32
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:mod:recent:063

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Web page: http://www.recent.unimore.it/
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Keywords: structural factor model; news shocks; invertibility; fundamentalness;

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References

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Cited by:
  1. Seymen, Atılım, 2013. "Sequential identification of technological news shocks," ZEW Discussion Papers 13-111, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Mario Forni & Luca Gambetti & Luca Sala, 2013. "No News in Business Cycles," Working Papers 491, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  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. Roberto perotti, 2011. "Expectations and Fiscal Policy: An Empirical Investigation," Working Papers 429, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Born, Benjamin & Peter, Alexandra & Pfeifer, Johannes, 2013. "Fiscal news and macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2582-2601.

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