American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Noisy News in Business Cycles
American Economic Journal: Macroeconomics
vol. 9,
no. 4, October 2017
(pp. 122–52)
Abstract
We investigate the role of "noise" shocks as a source of business cycle fluctuations. 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 a sizable fraction of their prediction error variance at business cycle horizons.Citation
Forni, Mario, Luca Gambetti, Marco Lippi, and Luca Sala. 2017. "Noisy News in Business Cycles." American Economic Journal: Macroeconomics, 9 (4): 122–52. DOI: 10.1257/mac.20150359Additional Materials
JEL Classification
- C32 Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
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