A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks -which are shocks that have no short or long run effects on productivity -and fluctuations driven by unexpected changes in technology.In this paper we propose a means of evaluating this view and we show that it is strongly at odds with the data.In contrast, we show that the data favors a view of business cycles driven primarily by a shock that does not affect productivity in the short run -therefore it looks like a demand shock -but affects productivity in the long run.The structural interpretation we suggest for this shock is that it represents news about future technological opportunities.We show that this shock explains about 50% of business cycle fluctuations and therefore deserves to be acknowledged and further understood by macroeconomists.
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