Nominal Rigidities, News-Driven Business Cycles, and Monetary Policy
A news-driven business cycle is a positive comovement in consumption, labor, investment, and output caused by positive news about the future. Standard real business cycle models do not generate it. In this paper, we find that a used market friction i.e., sticky prices can be a source of news-driven business cycles from news about future technology growth, technology level, and expansionary monetary policy shocks. The key mechanism is the countercyclical movements of markups through nominal rigidities.
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Volume (Year): 10 (2010)
Issue (Month): 1 (September)
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