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When Creativity Strikes: News Shocks and Business Cycle Fluctuations

Silvia Miranda-Agrippino (), Sinem Hacioglu Hoke () and Kristina Bluwstein

No 1823, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We use monthly US utility patent applications to construct an external instrument for identification of technology news shocks in a rich-information VAR. Technology diffuses slowly, and affects total factor productivity in an S-shaped pattern. Responsible for about a tenth of economic fluctuations at business cycle frequencies, the shock elicits a slow, but large and positive response of quantities, and a sluggish contraction in prices, followed by an endogenous easing in the monetary stance. The ensuing economic expansion substantially anticipates any material increase in TFP. Technology news are strongly priced-in in the stock market on impact, but measures of consumers’ expectations take sensibly longer to adjust, consistent with a New-Keynesian framework with nominal rigidities, and featuring informationally constrained agents.

Keywords: Technology news schocks; Business cycle; Identification with external instruments; Patent applications (search for similar items in EconPapers)
JEL-codes: E22 E23 E32 O33 O34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018-08
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Working Paper: When creativity strikes: news shocks and business cycle fluctuations (2019) Downloads
Working Paper: When creativity strikes: news shocks and business cycle fluctuations (2018) Downloads
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