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No News in Business Cycles

  • Mario Forni

    ()

  • Luca Gambetti

    ()

  • Luca Sala

    ()

This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology.

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Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 862.11.

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Length: 30
Date of creation: 21 Feb 2011
Date of revision:
Handle: RePEc:aub:autbar:862.11
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  8. Mario Forni & Luca Gambetti & Luca Sala, 2011. "No News in Business Cycles," Working Papers 535, Barcelona Graduate School of Economics.
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