News shocks and business cycles

Per Krusell and Alisdair McKay

Economic Quarterly, 2010, vol. 96, issue 4Q, 373-397

Abstract: This article considers the question, raised by Beaudry and Portier in their recent articles, of whether \\"news shocks\\" can lead to expansions and contractions that look like business cycle movements. News shocks are to be thought of solely as affecting expectations (regarding future events) and thus do not influence current resource restrictions at all. So the question is, for example, whether news about lower future productivity could lead our key aggregate variables?consumption, investment, and employment?to co-move down now. Beaudry and Portier make the point that standard neoclassical models clearly will not allow this outcome, and they, along with other researchers in follow-up work, suggest elaborations on the standard model that would. In the present research, we review this literature and propose a very simple model that does quite well in predicting co-movements in response to news shocks. The model is based on a departure from competitive labor markets: It uses a standard Diamond-Mortensen-Pissarides view that unemployment is determined as a function of search/matching frictions.

Keywords: Economic growth; Business cycles (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.richmondfed.org/-/media/RichmondFedOrg ... 0/q4/pdf/krusell.pdf Full Text (text/html)

Related works:
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: https://EconPapers.repec.org/RePEc:fip:fedreq:y:2010:i:4q:p:373-397:n:v.96no.4

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Economic Quarterly from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().