News shocks and business cycles

Robert Barsky and Eric Sims ()

Journal of Monetary Economics, 2011, vol. 58, issue 3, 273-289

Abstract: This paper proposes and implements a novel structural VAR approach to the identification of news shocks about future technology. The news shock is identified as the shock orthogonal to the innovation in current utilization-adjusted TFP that best explains variation in future TFP. A favorable news shock leads to an increase in consumption and decreases in output, hours, and investment on impact – more suggestive of standard DSGE models than of recent extensions designed to generate news-driven business cycles. Though news shocks account for a significant fraction of output fluctuations at medium frequencies, they contribute little to our understanding of recessions.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:58:y:2011:i:3:p:273-289

DOI: 10.1016/j.jmoneco.2011.03.001

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