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Noisy News in Business cycles

Mario Forni (), Luca Gambetti (), Marco Lippi () and Luca Sala ()

No 9601, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced form residuals. We use our identification approach to investigate the role of the "noise" shock the component of the signal observed by agents which is unrelated to economic fundamentals as a source of business cycle fluctuations. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment and account for about a third of their prediction error variance at business cycle horizons.

Keywords: Business cycle; Imperfect information; News; Noise; Nonfundamentalness; SVAR (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2013-08
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Related works:
Journal Article: Noisy News in Business Cycles (2017) Downloads
Working Paper: Noisy News in Business Cycles (2014) Downloads
Working Paper: Noisy News in Business Cycles (2014) Downloads
Working Paper: Noisy News in Business Cycles (2014) Downloads
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