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Noisy News in Business Cycles

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

No 531, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We investigate the role of "noise" shocks as a source of business cycle fl uctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment and account for quite a sizable fraction of their prediction error variance at business cycle horizons. JEL classification: C32, E32, E62. Keywords: Nonfundamentalness, SVAR, Imperfect Information, News, Noise, Business cycles.

New Economics Papers: this item is included in nep-ecm and nep-mac
Date: 2014
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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 (2013) Downloads
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