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News and Business Cycles in Open Economies

  • Nir Jaimovich
  • Sergio Rebelo

Aggregate and sectoral comovement are central features of business cycle data. Therefore, the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most existing models fail. In this paper we propose a unified model that generates both aggregate and sectoral comovement in response to contemporaneous shocks and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral TFP shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and a new form of preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13444.

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Date of creation: Sep 2007
Date of revision:
Publication status: published as Nir Jaimovich & Sergio Rebelo, 2008. "News and Business Cycles in Open Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1699-1711, December.
Handle: RePEc:nbr:nberwo:13444
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  1. Eberly, Janice & Rebelo, Sérgio & Vincent, Nicolas, 2008. "Investment and Value: A Neoclassical Benchmark," CEPR Discussion Papers 6737, C.E.P.R. Discussion Papers.
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  18. Wouter J. Denhaan & Georg Kaltenbrunner, 2005. "Growth Expectations and Business Cycles," 2005 Meeting Papers 29, Society for Economic Dynamics.
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