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News Shocks and Learning-by-doing

Author

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  • Hammad Qureshi

    () (Department of Economics, Ohio State University)

Abstract

The idea that expectations about future economic fundamentals can drive business cycles dates back to the early twentieth century. However, the standard real business cycle (RBC) model fails to generate positive comovement in output, consumption, labor-hours and investment in response to news shocks. This paper proposes a simple and intuitive solution to this puzzling feature of the RBC model, based on a mechanism that has strong empirical support: learning-by-doing (LBD). First, we show that the one-sector RBC model augmented by LBD can generate aggregate comovement in response to news shock about technology. Second, we show that in the two-sector RBC model, LBD along with an intratemporal adjustment cost can generate sectoral comovement in response to news about three types of shocks: i) neutral technology shock, ii) consumption technology shock, and iii) investment technology shock. We show that these results hold for contemporaneous technology shocks and for different specifications of LBD.

Suggested Citation

  • Hammad Qureshi, 2009. "News Shocks and Learning-by-doing," Working Papers 09-06, Ohio State University, Department of Economics.
  • Handle: RePEc:osu:osuewp:09-06
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    File URL: http://www.econ.ohio-state.edu/pdf/qureshi/wp09-06.pdf
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    References listed on IDEAS

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    6. Yongsung Chang & Joao F. Gomes & Frank Schorfheide, 2002. "Learning-by-Doing as a Propagation Mechanism," American Economic Review, American Economic Association, pages 1498-1520.
    7. Cooper, Russell & Johri, Alok, 2002. "Learning-by-doing and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1539-1566, November.
    8. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, May.
    9. Stephanie Schmitt-Grohe & Martin Uribe, 2008. "What's News in Business Cycles," NBER Working Papers 14215, National Bureau of Economic Research, Inc.
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    12. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
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    Cited by:

    1. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    2. Julien Prat & Boyan Jovanovic, 2015. "Reputation Cycles," 2015 Meeting Papers 971, Society for Economic Dynamics.
    3. Dupor, Bill & Mehkari, M. Saif, 2014. "The analytics of technology news shocks," Journal of Economic Theory, Elsevier, vol. 153(C), pages 392-427.
    4. Saif Mehkari & Bill Dupor, 2010. "Solving the Procyclical News Shock Problem," 2010 Meeting Papers 400, Society for Economic Dynamics.

    More about this item

    Keywords

    News Shocks; Learning-by-Doing; Pigou Cycles;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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