NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Whither News Shocks?

Robert B. Barsky, Susanto Basu, Keyoung Lee

NBER Working Paper No. 20666
Issued in November 2014
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

Does news about future productivity cause business-cycle fluctuations? What other effects might it have? We explore the answer to this question using semi-structural VARs, where “news” is defined as the innovation in the expectation of TFP at a fixed horizon in the future. We find that systems incorporating a number of forward-looking variables, including stock prices, consumption, consumer confidence and inflation, robustly predict three outcomes. First, following a news shock, TFP rises for several years. Second, inflation falls immediately and substantially, and stays low, often for 10 quarters or more. Third, there is a sharp increase in a forward-looking measure of consumer confidence. Consumption typically rises following good news, but investment, consumer durables purchases and hours worked typically fall on impact. All the quantity variables subsequently rise, as does TFP. Depending on the specification of the reduced form VAR, the activity variables may lead TFP to some extent – possibly lending some support to the hypothesis of news-driven business cycles – or they may move in lockstep with productivity. For the most part, the quantity and inflation responses are quite consistent with the predictions of a standard New Keynesian model augmented with real wage inertia.

download in pdf format
   (1255 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20666

Published: Whither News Shocks?, Robert B. Barsky, Susanto Basu, Keyoung Lee. in NBER Macroeconomics Annual 2014, Volume 29, Parker and Woodford. 2015

Users who downloaded this paper also downloaded* these:
Barsky and Sims w15312 News Shocks
Barsky, Basu, and Lee Whither News Shocks?
Beaudry, Fève, Guay, and Portier w21466 When is Nonfundamentalness in VARs a Real Problem? An Application to News Shocks
Chung, Herbst, and Kiley w20611 Effective Monetary Policy Strategies in New Keynesian Models: A Re-examination
Fisher Comment on "Letting Different Views about Business Cycles Compete"
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us