This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Noisy News in Business Cycles

  • Mario Forni
  • Luca Gambetti
  • Marco Lippi
  • Luca Sala
American Economic Journal: Macroeconomics
vol. 9, no. 4, October 2017
(pp. 122–52)
Download Full Text PDF

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.20150359

Additional 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
There are no comments for this article.
Login to Comment