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When creativity strikes: news shocks and business cycle fluctuations

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  • Miranda-Agrippino, Silvia

    () (Department for Economics, Northwestern University)

  • Hacioglu Hoke, Sinem

    () (Bank of England)

  • Bluwstein, Kristina

    () (Bank of England)

Abstract

We use data on monthly patent applications to construct an external instrument for identification of technology news shocks in an information-rich VAR. Technology diffuses slowly and affects total factor productivity in an S-shaped pattern. Responsible for about a tenth of economic fluctuations at business cycle frequencies, the shock elicits a slow, large and positive response of quantities, and a sluggish contraction of prices followed by an endogenous easing of the monetary stance. The ensuing economic expansion substantially anticipates any material increase in TFP. Technology news shocks are strongly priced into the stock market on impact, but measures of consumer expectations take sensibly longer to adjust, consistent with a New-Keynesian framework with nominal rigidities, and featuring informationally constrained agents.

Suggested Citation

  • Miranda-Agrippino, Silvia & Hacioglu Hoke, Sinem & Bluwstein, Kristina, 2019. "When creativity strikes: news shocks and business cycle fluctuations," Bank of England working papers 788, Bank of England.
  • Handle: RePEc:boe:boeewp:0788
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    Cited by:

    1. Daniela Fantozzi & Alessio Muscarnera, 2021. "A News-based Policy Index for Italy: Expectations and Fiscal Policy," CEIS Research Paper 509, Tor Vergata University, CEIS, revised 11 Mar 2021.
    2. Metiu, Norbert, 2020. "Anticipation effects of protectionist U.S. trade policies," Discussion Papers 52/2020, Deutsche Bundesbank.
    3. Cascaldi-Garcia, Danilo & Vukotic, Marija, 2019. "Patent-Based News Shocks," The Warwick Economics Research Paper Series (TWERPS) 1225, University of Warwick, Department of Economics.
    4. Oliver Holtemöller & Alexander Kriwoluzky & Boreum Kwak, 2020. "Exchange Rates and the Information Channel of Monetary Policy," Discussion Papers of DIW Berlin 1906, DIW Berlin, German Institute for Economic Research.
    5. Claudio, João C. & von Schweinitz, Gregor, 2020. "On the international dissemination of technology news shocks," IWH Discussion Papers 25/2020, Halle Institute for Economic Research (IWH).
    6. Hacioglu Hoke, Sinem, 2019. "Macroeconomic effects of political risk shocks," Bank of England working papers 841, Bank of England.
    7. Miranda-Agrippino, Silvia & Ricco, Giovanni, 2019. "Identification with External Instruments in Structural VARs under Partial Invertibility," The Warwick Economics Research Paper Series (TWERPS) 1213, University of Warwick, Department of Economics.
    8. Silvia Miranda Agrippino & Giovanni Ricco, 2018. "Identification with external instruments in structural VARs under partial invertibility," Sciences Po publications 24, Sciences Po.
    9. Pinchetti, Marco, 2020. "What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model," MPRA Paper 98316, University Library of Munich, Germany.

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    More about this item

    Keywords

    Technology news shocks; business cycle; identification with external instruments; patent applications;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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