Investment-Specific News Shocks and U.S. Business Cycles

Nadav Ben Zeev and Hashmat Khan ()

No 12-05, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper provides robust evidence that news shocks about future investment-specific technology (IST) constitute a signicant force behind U.S. business cycles. Extending a recent empirical approach to identifying news shocks, we find that positive IST news shocks induce comovement, i.e., raise output, consumption, investment,and hours. These shocks account for 70% of the business cycle variation in output, hours, and consumption, and 60% of the variation in investment, and have played an important role in 9 of the last 10 U.S recessions. IST news shocks also dominate unanticipated IST shocks in accounting for the forecast variance of aggregate variables. The findings have two important implications for research on news driven business cycles. First, they provide strong support for shifting focus to IST news shocks when investigating the role of news (or foresight) in driving business cycles. Second, an important avenue for further research is to consider structural mechanisms that can enhance the role of IST news shocks in estimated dynamic general equilibrium models.

Keywords: Investment-specific technology; News shocks; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-09-19, Revised 2013-02-25
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (15)

Published: Carleton Economic Papers

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Journal Article: Investment‐Specific News Shocks and U.S. Business Cycles (2015)
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