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News and Aggregate Demand Shocks

Author

Listed:
  • Guido Lorenzoni

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142-1347, and NBER, Cambridge, Massachusetts 02138)

Abstract

In this review, I look at the recent literature on news as a source of economic fluctuations. The main question in this literature is: how does the aggregate economy respond to a shock that raises consumers' and firms' expectations about future productivity growth? I discuss how different papers have addressed this question, emphasizing the mechanisms at work under different specifications of preferences and technology, under different assumptions about nominal and real rigidities, and under different assumptions about the agents' information structure. I also briefly discuss some challenges faced by the empirical literature on the topic.

Suggested Citation

  • Guido Lorenzoni, 2011. "News and Aggregate Demand Shocks," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 537-557, September.
  • Handle: RePEc:anr:reveco:v:3:y:2011:p:537-557
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-061109-080427
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    Citations

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    Cited by:

    1. Dong, Feng & Wen, Yi, 2019. "Long and Plosser meet Bewley and Lucas," Journal of Monetary Economics, Elsevier, vol. 102(C), pages 70-92.
    2. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    3. Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-3070, December.
    4. Nam, Deokwoo & Wang, Jian, 2015. "The effects of surprise and anticipated technology changes on international relative prices and trade," Journal of International Economics, Elsevier, vol. 97(1), pages 162-177.
    5. Lorenzo Bretscher & Andrea Tamoni & Aytek Malkhozov, 2019. "News Shocks and Asset Prices," 2019 Meeting Papers 100, Society for Economic Dynamics.
    6. Pavlov, Oscar, 2016. "Can firm entry explain news-driven fluctuations?," Economic Modelling, Elsevier, vol. 52(PB), pages 427-434.
    7. Rousakis, Michael, 2012. "Expectations and Fluctuations: The Role of Monetary Policy," Economic Research Papers 270655, University of Warwick - Department of Economics.
    8. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    9. Daniele Siena, 2017. "What's News in International Business Cycles," 2017 Meeting Papers 1206, Society for Economic Dynamics.
    10. Milani, Fabio & Rajbhandari, Ashish, 2020. "Observed expectations, news shocks, and the business cycle," Research in Economics, Elsevier, vol. 74(2), pages 95-118.
    11. Ricardo J. Caballero & Alp Simsek, 2020. "Monetary Policy with Opinionated Markets," NBER Working Papers 27313, National Bureau of Economic Research, Inc.
    12. Ryan Chahrour & Kyle Jurado, 2018. "News or Noise? The Missing Link," American Economic Review, American Economic Association, vol. 108(7), pages 1702-1736, July.
    13. Can Tian, 2014. "Forecast Shocks in Production Networks," 2014 Meeting Papers 87, Society for Economic Dynamics.
    14. Maćkowiak, Bartosz & Matějka, Filip & Wiederholt, Mirko, 2018. "Dynamic rational inattention: Analytical results," Journal of Economic Theory, Elsevier, vol. 176(C), pages 650-692.
    15. Michael Rousakis, 2013. "Expectations and Fluctuations: The Role of Monetary Policy," 2013 Meeting Papers 681, Society for Economic Dynamics.
    16. Favilukis, Jack & Lin, Xiaoji, 2013. "Long run productivity risk and aggregate investment," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 737-751.
    17. Markus Brückner & Evi Pappa, 2015. "News Shocks in the Data: Olympic Games and Their Macroeconomic Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(7), pages 1339-1367, October.
    18. Dupor, Bill & Mehkari, M. Saif, 2014. "The analytics of technology news shocks," Journal of Economic Theory, Elsevier, vol. 153(C), pages 392-427.
    19. William Gatt, 2018. "Housing boom-bust cycles and asymmetric macroprudential policy," CBM Working Papers WP/02/2018, Central Bank of Malta.

    More about this item

    Keywords

    business cycles; expectations;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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