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Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach

Author

Listed:
  • Ippei Fujiwara

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: ippei.fujiwara@boj.or.jp))

  • Yasuo Hirose

    (International Department, Bank of Japan (E-mail: yasuo.hirose@boj.or.jp))

  • Mototsugu Shintani

    (Department of Economics, Vanderbilt University, and Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mototsugu.shintani@vanderbilt.edu, mototsugu.shintani@boj.or.jp))

Abstract

We examine whether the news shocks, as explored in Beaudry and Portier (2004), can be a major source of aggregate fluctuations. For this purpose, we extend a dynamic stochastic general equilibrium model, a la Christiano, Eichenbaum, and Evans (2005), by allowing news shocks on the total factor productivity and estimate the model using Bayesian methods. Estimation results on the Japanese and U.S. economies show that (1) the news shocks play an important role in business cycles; (2) a news shock with a longer forecast horizon has larger effects on nominal variables; and (3) the overall effect of the total factor productivity on hours worked becomes ambiguous in the presence of news shocks.

Suggested Citation

  • Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2008. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," IMES Discussion Paper Series 08-E-16, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:08-e-16
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    Keywords

    Demand for Money; Aggregation; Heterogeneity;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

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