News Shocks and Business Cycles: Bridging the Gap from Different Methodologies

Christoph Görtz and John D. Tsoukalas

No 2013-117, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: An important disconnect in the news driven view of the business cycle formalized by Beaudry and Portier (2004), is the lack of agreement between different—VAR and DSGE—methodologies over the empirical plausibility of this view. We argue that this disconnect can be largely resolved once we augment a standard DSGE model with a financial channel that provides amplification to news shocks. Both methodologies suggest news shocks to the future growth prospects of the economy to be signficant drivers of U.S. business cycles in the post-Greenspan era (1990-2011), explaining as much as 50% of the forecast error variance in hours worked in cyclical frequencies

Keywords: News shocks; Business cycles; DSGE; VAR; Bayesian estimation (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (2)

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Working Paper: News shocks and business cycles: bridging the gap from different methodologies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:542

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