Can News about the Future Drive the Business Cycle?

Nir Jaimovich and Sergio Rebelo ()

American Economic Review, 2009, vol. 99, issue 4, 1097-1118

Abstract: Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply. (JEL E13, E20, E32)

JEL-codes: E13 E20 E32 (search for similar items in EconPapers)
Date: 2009
Note: DOI: 10.1257/aer.99.4.1097
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Citations: View citations in EconPapers (738)

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Related works:
Working Paper: Can News About the Future Drive the Business Cycle? (2006)
Working Paper: Can News About the Future Drive the Business Cycle? (2006)
Working Paper: Can News About the Future Drive the Business Cycle? (2006)
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