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.

Date: 2014
New Economics Papers: this item is included in nep-ecm and nep-mac
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Related works:
Journal Article: Noisy News in Business Cycles (2017)
Working Paper: Noisy News in Business Cycles (2014)
Working Paper: Noisy News in Business Cycles (2014)
Working Paper: Noisy News in Business cycles (2013)
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