Noisy News in Business Cycles

Mario Forni, Luca Gambetti, Marco Lippi and Luca Sala

American Economic Journal: Macroeconomics, 2017, vol. 9, issue 4, 122-52

Abstract: We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced-form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment, and account for a sizable fraction of their prediction error variance at business cycle horizons.

JEL-codes: C32 D83 E12 E23 E32 E43 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mac.20150359
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Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Noisy News in Business Cycles (2014)
Working Paper: Noisy News in Business Cycles (2014)
Working Paper: Noisy News in Business Cycles (2014)
Working Paper: Noisy News in Business cycles (2013)
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