NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Stock Prices, News and Economic Fluctuations

Paul Beaudry, Franck Portier

NBER Working Paper No. 10548
Issued in June 2004
NBER Program(s):Economic Fluctuations and Growth, Asset Pricing

In this paper we show that the joint behavior of stock prices and TFP favors a view of business cycles driven largely by a shock that does not affect productivity in the short run -- and therefore does not look like a standard technology shock -- but affects productivity with substantial delay -- and therefore does not look like a monetary shock. One structural interpretation we suggest for this shock is that it represents news about future technological opportunities which is first captured in stock prices. We show that this shock causes a boom in consumption, investment and hours worked that precede productivity growth by a few years. Moreover, we show that this shock explains about 50\% of business cycle fluctuations.

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Document Object Identifier (DOI): 10.3386/w10548

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