Articlebronze2016

News and Financial Intermediation in Aggregate Fluctuations

49 citations0/0 files storedThe Review of Economics and Statistics

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Monetary Policy and Economic Impact Market Dynamics and Volatility Economic theories and models

Abstract

An important disconnect in the news view of fluctuations is the lack of consistent evidence suggestive of significant macroeconomic effects of news shocks. Findings from estimated DSGE models that in theory allow news shocks to matter quantitatively suggest that they do not. This disconnect can be resolved once we augment a DSGE model with a financial channel that provides amplification to news shocks. Our results suggest that news shocks to the future growth prospects of the economy are significant drivers of U.S. fluctuations, explaining as much as 50% and 37% of the variance in hours worked and output, respectively, in cyclical frequencies.

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References

1983Staggered prices in a utility-maximizing framework 1973An Intertemporal Capital Asset Pricing Model 2005Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy 2005INTEREST AND PRICES: FOUNDATIONS OF A THEORY OF MONETARY POLICY 2007Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach 1996Staggered Prices in a Utility-Maximizing Framework 2003Implications of rational inattention 2010A model of unconventional monetary policy

Cited by

2020Patent-Based News Shocks 2019Adaptive hierarchical priors for high-dimensional vector autoregressions 2020News Shocks Under Financial Frictions 2020Growth Expectations, Undue Optimism, and Short-Run Fluctuations 2020Is There News in Inventories?2013News Driven Business Cycles: Insights and Challenges 2018Intersectoral Labor Immobility, Sectoral Comovement, and News Shocks

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