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Nominal Rigidities, News-Driven Business Cycles, and Monetary Policy

  • Kobayashi Keiichiro

    ()

    (Hitotsubashi University and the Research Institute of Economy, Trade and Industry)

  • Nutahara Kengo

    ()

    (Senshu University)

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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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 10 (2010)
Issue (Month): 1 (September)
Pages: 1-26

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Handle: RePEc:bpj:bejmac:v:10:y:2010:i:1:n:24
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  1. Mark Aguiar & Gita Gopinath, 2004. "Emerging Market Business Cycles: The Cycle is the Trend," NBER Working Papers 10734, National Bureau of Economic Research, Inc.
  2. Jaimovich, Nir & Rebelo, Sérgio, 2007. "News and Business Cycles in Open Economies," CEPR Discussion Papers 6520, C.E.P.R. Discussion Papers.
  3. Robert Dittmar & William Gavin & Finn Kydland, 2002. "Inflation Persistence and Flexible Prices," Computing in Economics and Finance 2002 190, Society for Computational Economics.
  4. Den Haan, Wouter & Kaltenbrunner, Georg, 2007. "Anticipated Growth and Business Cycles in Matching Models," CEPR Discussion Papers 6063, C.E.P.R. Discussion Papers.
  5. Kobayashi, Keiichiro & Nakajima, Tomoyuki & Inaba, Masaru, 2012. "Collateral Constraint And News-Driven Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 16(05), pages 752-776, November.
  6. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  7. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
  8. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
  9. Franck Portier & Paul Beaudry, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations?," 2004 Meeting Papers 865, Society for Economic Dynamics.
  10. Keiichiro Kobayashi & Kengo Nutahara, 2007. "Collateralized capital and news-driven cycles," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-9.
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  12. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
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