TY  - JOUR
AU  - Blanchard,Olivier J.
AU  - L'Huillier,Jean-Paul
AU  - Lorenzoni,Guido
TI  - News, Noise, and Fluctuations: An Empirical Exploration
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15015
PY  - 2009
Y2  - May 2009
UR  - http://www.nber.org/papers/w15015
L1  - http://www.nber.org/papers/w15015.pdf
N1  - Author contact info:
Olivier J. Blanchard
International Monetary Fund
Economic Counsellor and Director
Research Department
700 19th Street, NW
Rm. 10-700
Washington DC, 20431
Tel: 202-623-7825
Fax: 202-623-7271
E-Mail: blanchar@mit.edu

Jean-Paul L'Huillier
Yale University
Room 208
28 Hillhouse Avenue
New Haven 06511
E-Mail: jplhuillier2010@gmail.com

Guido Lorenzoni
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8243
Fax: 847/491-7001
E-Mail: guido.lorenzoni@northwestern.edu
AB  - 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.
ER  -