News, Noise, and Fluctuations: An Empirical Exploration

Olivier Blanchard, Jean-Paul L'Huillier and Guido Lorenzoni (guido.lorenzoni@chicagobooth.edu)

No 15015, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations.

JEL-codes: C32 D83 E32 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-bec, nep-cba and nep-ecm
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published as Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-70, December.

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Related works:
Journal Article: News, Noise, and Fluctuations: An Empirical Exploration (2013)
Working Paper: News, Noise, and Fluctuations: An Empirical Exploration (2012)
Working Paper: News, Noise, and Fluctuations: An Empirical Exploration (2011)
Working Paper: News, Noise and Fluctuations: An Empirical Exploration (2009)
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