News, Noise, and Fluctuations: An Empirical Exploration

Jean-Paul L'Huillier, Guido Lorenzoni () and Olivier Blanchard

No 969, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2011/paper_969.pdf (application/pdf)

Related works:
Journal Article: News, Noise, and Fluctuations: An Empirical Exploration (2013)
Working Paper: News, Noise, and Fluctuations: An Empirical Exploration (2012)
Working Paper: News, Noise, and Fluctuations: An Empirical Exploration (2009)
Working Paper: News, Noise and Fluctuations: An Empirical Exploration (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:969

Access Statistics for this paper

More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().