A structural factor‐augmented VAR model is used to evaluate the role of ‘news shocks’ in generating the business cycle. We find that existing small‐scale VAR models are affected by ‘non‐fundamentalness’ and therefore fail to recover the correct shock and impulse response functions; news shocks have a smaller role in explaining the business cycle than previously found in the literature; their effects are essentially in line with what predicted by standard theories and a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology.
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