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News or Noise? The Missing Link

Kyle Jurado and Ryan Chahrour
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Kyle Jurado: Duke University

No 320, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: The literature on belief-driven business cycles treats news and noise as distinct representations of people’s beliefs. We prove they are empirically the same. Our result lets us isolate the importance of beliefs as an independent source of fluctuations. Using three prominent estimated models, we show that existing research understates this importance. Our result implies that structural vector autoregression analysis can be applied to models with either news or noise. We demonstrate this in U.S. data, and find that productivity accounts for 14% of consumption fluctuations, of which only a small portion is due to future shocks; the rest is noise.

Date: 2017
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Journal Article: News or Noise? The Missing Link (2018) Downloads
Working Paper: News or Noise? The Missing Link (2017) Downloads
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