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News or Noise? The Missing Link

Author

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  • Kyle Jurado

    (Duke University)

  • Ryan Chahrour

    (Boston College)

Abstract

The literature on belief-driven business cycles treats news and noise as distinct representations of people’s beliefs. We prove they are empirically the same. Our result lets us isolate the importance of beliefs as an independent source of fluctuations. Using three prominent estimated models, we show that existing research understates this importance. Our result implies that structural vector autoregression analysis can be applied to models with either news or noise. We demonstrate this in U.S. data, and find that productivity accounts for 14% of consumption fluctuations, of which only a small portion is due to future shocks; the rest is noise.

Suggested Citation

  • Kyle Jurado & Ryan Chahrour, 2017. "News or Noise? The Missing Link," 2017 Meeting Papers 320, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:320
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    References listed on IDEAS

    as
    1. Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Thomas J. Sargent & Mark W. Watson, 2007. "ABCs (and Ds) of Understanding VARs," American Economic Review, American Economic Association, vol. 97(3), pages 1021-1026, June.
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    Citations

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    Cited by:

    1. repec:eee:inecon:v:114:y:2018:i:c:p:362-375 is not listed on IDEAS
    2. Akıncı, Özge & Chahrour, Ryan, 2018. "Good news is bad news: Leverage cycles and sudden stops," Journal of International Economics, Elsevier, vol. 114(C), pages 362-375.
    3. Joshua Chan & Luca Benati & Eric Eisenstat & Gary Koop, 2018. "Identifying Noise Shocks," Working Paper Series 41, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    4. Faccini, Renato & Melosi, Leonardo, 2018. "The Role of News about TFP in U.S. Recessions and Booms," Working Paper Series WP-2018-6, Federal Reserve Bank of Chicago.
    5. Ryan Chahrour & Kyle Jurado, 2017. "Recoverability," Boston College Working Papers in Economics 935, Boston College Department of Economics.
    6. Chahrour, Ryan & Gaballo, Gaetano, 2017. "Learning from prices: amplication and business fluctuations," Working Paper Series 2053, European Central Bank.
    7. Yasuo Hirose & Takushi Kurozumi, 2012. "Identifying News Shocks with Forecast Data," CAMA Working Papers 2012-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Faccini, Renato & Melosi, Leonardo, 2018. "Pigouvian Cycles," CEPR Discussion Papers 13370, C.E.P.R. Discussion Papers.
    9. Alexandre Kohlhas & Tobias Broer, 2019. "Forecaster (Mis-)Behavior," 2019 Meeting Papers 1171, Society for Economic Dynamics.
    10. Campbell, Jeffrey R. & Ferroni, Filippo & Fisher, Jonas D. M. & Melosi, Leonardo, 2019. "The limits of forward guidance," Working Paper Series WP-2019-3, Federal Reserve Bank of Chicago.
    11. Lorenzo Bretscher & Andrea Tamoni & Aytek Malkhozov, 2019. "News Shocks and Asset Prices," 2019 Meeting Papers 100, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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