NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

News, Noise, and Fluctuations: An Empirical Exploration

Olivier J. Blanchard, Jean-Paul L'Huillier, Guido Lorenzoni

NBER Working Paper No. 15015
Issued in May 2009
NBER Program(s):   EFG   ME

We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations.

download in pdf format
   (282 K)

email paper

This paper is available as PDF (282 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15015

Published: Olivier J. Blanchard & Jean-Paul L'Huillier & Guido Lorenzoni, 2013. "News, Noise, and Fluctuations: An Empirical Exploration," American Economic Review, American Economic Association, vol. 103(7), pages 3045-70, December.

Users who downloaded this paper also downloaded these:
Blanchard w14259 The State of Macro
Barsky and Sims w15049 Information, Animal Spirits, and the Meaning of Innovations in Consumer Confidence
Schmitt-Grohe and Uribe w14215 What's News in Business Cycles
Blanchard and Gali w13897 Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment
Barsky and Sims w15312 News Shocks
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us