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Stock Prices, News and Economic Fluctuations

In: Enhancing Productivity (NBER-CEPR-TCER-Keio conference)

  • Paul Beaudry
  • Franck Portier

A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks - which are shocks that have no short- or long-run effects on productivity - and fluctuations driven by unexpected changes in technology. In this Paper we propose a means of evaluating this view and we show that it is strongly at odds with the data. In contrast, we show that the data favours a view of business cycles driven primarily by a shock that does not affect productivity in the short run - therefore it looks like a demand shock - but affects productivity in the long run. The structural interpretation we suggest for this shock is that it represents news about future technological opportunities. We show that this shock explains about 50% of business cycle fluctuations and therefore deserves to be acknowledged and further understood by macroeconomists.

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This chapter was published in:
  • Dale Jorgenson & Takeo Hoshi & Masahiro Kuroda, 2005. "Enhancing Productivity (NBER-CEPR-TCER-Keio conference)," NBER Books, National Bureau of Economic Research, Inc, number jorg05-1, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0185.
    Handle: RePEc:nbr:nberch:0185
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    1. Paul Beaudry & Franck Portier, 2004. "Stock Prices, News and Economic Fluctuations," NBER Working Papers 10548, National Bureau of Economic Research, Inc.
    2. Susanto Basu & John Fernald & Miles Kimball, 1998. "Are technology improvements contractionary?," International Finance Discussion Papers 625, Board of Governors of the Federal Reserve System (U.S.).
    3. Robert J. Shiller, 1980. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," NBER Working Papers 0456, National Bureau of Economic Research, Inc.
    4. Boyan Jovanovic & Jeremy Greenwood, 1999. "The Information-Technology Revolution and the Stock Market," American Economic Review, American Economic Association, vol. 89(2), pages 116-122, May.
    5. Jordi Gali, 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations," NBER Working Papers 5721, National Bureau of Economic Research, Inc.
    6. Mankiw, N Gregory & Romer, David & Shapiro, Matthew D, 1985. " An Unbiased Reexamination of Stock Market Volatility," Journal of Finance, American Finance Association, vol. 40(3), pages 677-87, July.
    7. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
    8. Benhabib, Jess & Farmer, Roger E.A., 1999. "Indeterminacy and sunspots in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 6, pages 387-448 Elsevier.
    9. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc.
    10. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
    11. Nyblom, Jukka & Harvey, Andrew, 1999. "Tests of Common Stochastic Trends," Cambridge Working Papers in Economics 9902, Faculty of Economics, University of Cambridge.
    12. Schwert, G William, 1990. " Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-57, September.
    13. Pakes, Ariel, 1985. "On Patents, R & D, and the Stock Market Rate of Return," Scholarly Articles 3436409, Harvard University Department of Economics.
    14. Lawrence J. Christiano & Jonas D. M. Fisher, 2003. "Stock Market and Investment Goods Prices: Implications for Macroeconomics," NBER Working Papers 10031, National Bureau of Economic Research, Inc.
    15. Fama, Eugene F, 1990. " Stock Returns, Expected Returns, and Real Activity," Journal of Finance, American Finance Association, vol. 45(4), pages 1089-1108, September.
    16. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
    17. Ramey, Valerie A & Francis, Neville, 2002. "Is The Technology-Driven Real Business Cycle Hypothesis Dead? Shocks and Aggregate Fluctuations Revisted," University of California at San Diego, Economics Working Paper Series qt6x80k3nx, Department of Economics, UC San Diego.
    18. Ricardo J. Caballero & Mohamad L. Hammour, 2002. "Speculative Growth," NBER Working Papers 9381, National Bureau of Economic Research, Inc.
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