News shocks and business cycles |
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Authors: | Robert B Barsky Eric R Sims |
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Institution: | a University of Michigan, United States b NBER, United States c University of Notre Dame, United States |
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Abstract: | This paper proposes and implements a novel structural VAR approach to the identification of news shocks about future technology. The news shock is identified as the shock orthogonal to the innovation in current utilization-adjusted TFP that best explains variation in future TFP. A favorable news shock leads to an increase in consumption and decreases in output, hours, and investment on impact - more suggestive of standard DSGE models than of recent extensions designed to generate news-driven business cycles. Though news shocks account for a significant fraction of output fluctuations at medium frequencies, they contribute little to our understanding of recessions. |
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