Stock Prices, News and Economic Fluctuations

Paul Beaudry () and Franck Portier ()

No 3844, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks - which are shocks that have no short- or long-run effects on productivity - and fluctuations driven by unexpected changes in technology. In this Paper we propose a means of evaluating this view and we show that it is strongly at odds with the data. In contrast, we show that the data favours a view of business cycles driven primarily by a shock that does not affect productivity in the short run - therefore it looks like a demand shock - but affects productivity in the long run. The structural interpretation we suggest for this shock is that it represents news about future technological opportunities. We show that this shock explains about 50% of business cycle fluctuations and therefore deserves to be acknowledged and further understood by macroeconomists.

Keywords: business cycle; news; productivity shocks (search for similar items in EconPapers)
JEL-codes: E30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fin and nep-mfd
Date: 2003-03
View list of references View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP3844.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Stock Prices, News and Economic Fluctuations (2004)
Working Paper: Stock Prices, News and Economic Fluctuations (2003)
Journal Article: Stock Prices, News, and Economic Fluctuations (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:3844

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP3844.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().