NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What's News in Business Cycles

Stephanie Schmitt-Grohe, Martin Uribe

NBER Working Paper No. 14215
Issued in August 2008
NBER Program(s):   EFG

In this paper, we perform a structural Bayesian estimation of the contribution of anticipated shocks to business cycles in the postwar United States. Our theoretical framework is a real-business-cycle model augmented with four real rigidities: investment adjustment costs, variable capacity utilization, habit formation in consumption, and habit formation in leisure. Business cycles are assumed to be driven by permanent and stationary neutral productivity shocks, permanent investment-specific shocks, and government spending shocks. Each of these shocks is buffeted by four types of structural innovations: unanticipated innovations and innovations anticipated one, two, and three quarters in advance. We find that anticipated shocks account for more than two thirds of predicted aggregate fluctuations. This result is robust to estimating a variant of the model featuring a parametric wealth elasticity of labor supply.

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Document Object Identifier (DOI): 10.3386/w14215

Published: What's News in Business Cycles by Stephanie Schmitt-Grohe and Martin Uribe, Econometrica 80, November 2012, 2733-2764.

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