No News in Business Cycles

Mario Forni, Luca Gambetti and Luca Sala

No 491, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: A structural Factor-Augmented VAR model is used to evaluate the role of "news" shocks in generating the business cycle. We find that (i) existing small-scale VAR models are affected by "non-fundamentalness" and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a smaller role in explaining the business cycle than previously found in the literature; (iii) their effects are essentially in line with what predicted by standard theories; (iv) a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology. JEL classification: C32, E32, E62. Keywords: Factor-augmented VAR, news shocks, invertibility, fundamentalness.

Date: 2013
New Economics Papers: this item is included in nep-bec, nep-lam, nep-ltv, nep-mac and nep-neu
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Related works:
Working Paper: No News in Business Cycles (2015)
Journal Article: No News in Business Cycles (2014)
Working Paper: No News in Business Cycles (2011)
Working Paper: No News in Business Cycles (2011)
Working Paper: No News in Business Cycles (2011)
Working Paper: No news in business cycles (2011)
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