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News, Noise and Fluctuations: An Empirical Exploration

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  • Jean-Paul L'Huillier

    (MIT)

  • Guido Lorenzoni

    (MIT)

  • Olivier J. Blanchard

    (IMF and MIT)

Abstract

We explore this class of models for two reasons. The first is that it appears to capture many of the aspects often ascribed to fluctuations, the role of animal spirits in affecting demand---spirits that we interpret here as coming from a rational reaction to signals about the future---, the role of demand in affecting output in the short run, together with the notion that output eventually returns to its natural level. The second is that it appears to fit the data in a more formal way. More specifically, it offers an interpretation of structural VARs based on the assumption of two major types of shocks, shocks with permanent effects, and shocks with transitory effects on activity.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 99.

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Date of creation: 2009
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Handle: RePEc:red:sed009:99

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  1. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
  2. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers 3844, C.E.P.R. Discussion Papers.
  3. Quah, Danny, 1992. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Econometrica, Econometric Society, vol. 60(1), pages 107-18, January.
  4. Emine Boz & Christian Daude & C. Bora Durdu, 2011. "Emerging Market Business Cycles Revisited: Learning about the Trend," Koç University-TUSIAD Economic Research Forum Working Papers 1110, Koc University-TUSIAD Economic Research Forum.
  5. Anderson, Evan W. & McGrattan, Ellen R. & Hansen, Lars Peter & Sargent, Thomas J., 1996. "Mechanics of forming and estimating dynamic linear economies," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 4, pages 171-252 Elsevier.
  6. Robert B. Barsky & Eric R. Sims, 2012. "Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence," American Economic Review, American Economic Association, vol. 102(4), pages 1343-77, June.
  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. Christopher A. Sims & Tao A. Zha, 1998. "Does monetary policy generate recessions?," Working Paper 98-12, Federal Reserve Bank of Atlanta.
  9. Jordi Gali, 1999. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," American Economic Review, American Economic Association, vol. 89(1), pages 249-271, March.
  10. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  11. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2009. "Fiscal Foresight and Information Flows," NBER Working Papers 14630, National Bureau of Economic Research, Inc.
  12. Guido Lorenzoni, 2009. "A Theory of Demand Shocks," American Economic Review, American Economic Association, vol. 99(5), pages 2050-84, December.
  13. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
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Cited by:
  1. George-Marios Angeletos & Jennifer La'O, 2011. "Decentralization, Communication, and the Origins of Fluctuations," NBER Working Papers 17060, National Bureau of Economic Research, Inc.
  2. 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.
  3. Guido Lorenzoni, 2009. "A Theory of Demand Shocks," American Economic Review, American Economic Association, vol. 99(5), pages 2050-84, December.
  4. Paul Beaudry & Franck Portier, 2013. "News Driven Business Cycles: Insights and Challenges," NBER Working Papers 19411, National Bureau of Economic Research, Inc.
  5. Patrick Hürtgen, 2011. "Consumer Misperceptions, Uncertain Fundamentals, and the Business Cycle," Bonn Econ Discussion Papers bgse10_2011, University of Bonn, Germany.
  6. Alejandro Justiniano & Claudio Michelacci, 2011. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the US and Europe," NBER Working Papers 17429, National Bureau of Economic Research, Inc.
  7. 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.
  8. D'Elia, Enrico, 2010. "Predictions vs preliminary sample estimates," MPRA Paper 36070, University Library of Munich, Germany.
  9. Tim Willems, 2010. "Labor Market Matching under Imperfect Information," Tinbergen Institute Discussion Papers 10-098/2, Tinbergen Institute, revised 13 May 2011.
  10. Robert Barsky, 2010. "News Shocks," 2010 Meeting Papers 95, Society for Economic Dynamics.
  11. Enrico D'Elia, 2014. "Predictions vs. preliminary sample estimates: the case of eurozone quarterly GDP," Working Papers 2, Department of the Treasury, Ministry of the Economy and of Finance.
  12. Vega, Hugo, 2010. "Total factor productivity and signal noise volatility in an incomplete information setting," Working Papers 2010-014, Banco Central de Reserva del Perú.

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