TY  - JOUR
AU  - Jaimovich,Nir
AU  - Rebelo,Sergio
TI  - Can News About the Future Drive the Business Cycle?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12537
PY  - 2006
Y2  - September 2006
UR  - http://www.nber.org/papers/w12537
L1  - http://www.nber.org/papers/w12537.pdf
N1  - Author contact info:
Nir Jaimovich
Department of Economics
Duke University
213 Social Services Building
Durham, NC 27708
Tel: 919/660-1864
E-Mail: njaimo@gmail.com

Sergio Rebelo
Northwestern University
Kellogg School of Management
Department of Finance
Leverone Hall
Evanston, IL  60208-2001
Tel: 847/467-2329
Fax: 847/491-5719
E-Mail: s-rebelo@northwestern.edu
AB  - Aggregate and sectoral comovement are central features of business cycle data. Therefore, the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most existing models fail. In this paper we propose a unified model that generates both aggregate and sectoral comovement in response to contemporaneous shocks and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral TFP shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and a new form of preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.
ER  -