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Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach

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  • Ippei Fujiwara

    ()
    (Financial Markets Department, Bank of Japan)

  • Yasuo Hirose

    ()
    (Monetary Affairs Department, Bank of Japan)

  • Mototsugu Shintani

    ()
    (Department of Economics, Vanderbilt University)

Abstract

We examine whether the news shocks, as explored in Beaudry and Portier(2004), can be a major source of aggregate fluctuations. For this purpose, we extend a standard dynamic stochastic general equilibrium model of Christiano, Eichenbaum, and Evans (2005), and Smets and Wouters (2003, 2007) by allowing news shocks on the total factor productivity, and estimate the model using Bayesian methods. Estimation results on the U.S. and Japanese economies suggest that (1) news shocks play a relatively more important role in the U.S. than in Japan; (2) a news shock with a longer forecast horizon has larger effects on nominal variables; and (3) the overall effect of the total factor productivity on hours worked becomes ambiguous in the presence of news shocks.

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File URL: http://www.accessecon.com/pubs/VUECON/vu09-w21.pdf
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0921.

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Date of creation: Dec 2009
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Handle: RePEc:van:wpaper:0921

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Bayesian estimation; business cycles; news;

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