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News shocks and business cycles: bridging the gap from different methodologies

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  • Christoph Görtz
  • John D. Tsoukalas

Abstract

An important disconnect in the news driven view of the business cycle formalized by Beaudry and Portier (2004), is the lack of agreement between different—VAR and DSGE—methodologies over the empirical plausibility of this view. We argue that this disconnect can be largely resolved once we augment a standard DSGE model with a financial channel that provides amplification to news shocks. Both methodologies suggest news shocks to the future growth prospects of the economy to be significant drivers of U.S. business cycles in the post-Greenspan era (1990-2011), explaining as much as 50% of the forecast error variance in hours worked in cyclical frequencies.

Suggested Citation

  • Christoph Görtz & John D. Tsoukalas, 2013. "News shocks and business cycles: bridging the gap from different methodologies," Working Papers 2013_25, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2013_25
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. News shocks and business cycles: bridging the gap from different methodologies
      by Christian Zimmermann in NEP-DGE blog on 2014-02-03 04:37:52

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    Cited by:

    1. Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2016. "A note on news about the future: the impact on DSGE models and their VAR representation," Cardiff Economics Working Papers E2016/11, Cardiff University, Cardiff Business School, Economics Section.

    More about this item

    Keywords

    News shocks; Business cycles; DSGE; VAR; Bayesian estimation.;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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