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Noisy News in Business Cycles

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  • Luca Gambetti

    (Universitat Autonoma de Barcelona)

Abstract

We investigate the role of ``noise'' shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment and account for about a third of their prediction error variance at business cycle horizons.

Suggested Citation

  • Luca Gambetti, 2014. "Noisy News in Business Cycles," 2014 Meeting Papers 1406, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:1406
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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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