News Driven Business Cycles: Insights and Challenges
There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established.
The authors have benefited from discussion with Fabrice Collard, Martial Dupaigne, Patrick Feve, Domenico Giannone and Andre Kurmann. They want to thank Dana Galizia for excellent research assistance. This paper is under review at the Journal of Economic Literature. Beaudry would like to thank the SSHRC of Canada and the Bank of Canada for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December. citation courtesy of