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News-driven business cycles in small open economies

Gunes Kamber, Konstantinos Theodoridis and Christoph Thoenissen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The focus of this paper is on news-driven business cycles in small open economies. We make two significant contributions. First, we develop a small open economy model where the presence of financial frictions permits the replication of business cycle co-movements in response to news shocks. Second, we use VAR analysis to identify news shocks using data on four advanced small open economies. We find that expected shocks about the future Total Factor Productivity generate business cycle co-movements in output, hours, consumption and investment. We also find that news shocks are associated with countercyclical current account dynamics. Our findings are robust across a number of alternative identification schemes.

Keywords: News shocks; business cycles; open economy macroeconomics; financial frictions; VAR (search for similar items in EconPapers)
JEL-codes: E32 F4 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-01
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://cama.crawford.anu.edu.au/sites/default/fil ... ridis_thoenissen.pdf (application/pdf)

Related works:
Journal Article: News-driven business cycles in small open economies (2017) Downloads
Working Paper: News-Driven Business Cycles in Small Open Economies (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-02

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