Noisy news in business cycles

Mario Forni, Luca Gambetti, Marco Lippi, Luca Sala

Research output: Contribution to journalArticleResearchpeer-review

14 Citations (Scopus)

Abstract

We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced-form residuals. We find that noise shocks generate hump- shaped responses of GDP, consumption and investment, and account for a sizable fraction of their prediction error variance at business cycle horizons.
Original languageEnglish
Pages (from-to)122-152
JournalAmerican Economic Journal: Macroeconomics
Volume9
Issue number4
DOIs
Publication statusPublished - 1 Jan 2017

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