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No News in Business Cycles

  • Forni, Mario
  • Gambetti, Luca
  • Sala, Luca

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 is explained by shocks unrelated to technology.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8274.

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Date of creation: Feb 2011
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Handle: RePEc:cpr:ceprdp:8274
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