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News Shocks, Business Cycles, and the Disinflation Puzzle

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  • HAFEDH BOUAKEZ
  • LAURENT KEMOE

Abstract

We argue that key findings of the empirical literature on the effects of news about future technology—including their tendency to generate negative comovement of macro‐economic aggregates, and their puzzling disinflationary nature—are due to measurement errors in total factor productivity (TFP). In this paper, we estimate the macro‐economic effects of news shocks in the United States using an agnostic identification approach that is robust to measurement errors. We find no evidence of negative comovement conditional on a news shock, and the disinflation puzzle essentially vanishes under our identification strategy. Our results also indicate that news shocks have become an important driver of business‐cycle fluctuations in recent years.

Suggested Citation

  • Hafedh Bouakez & Laurent Kemoe, 2023. "News Shocks, Business Cycles, and the Disinflation Puzzle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(8), pages 2115-2151, December.
    • Handle: RePEc:wly:jmoncb:v:55:y:2023:i:8:p:2115-2151
    DOI: 10.1111/jmcb.12939
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    References listed on IDEAS

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