Can News about the Future Drive the Business Cycle?

Authors: Jaimovich, Nir; Rebelo, Sergio

Source: The American Economic Review, Volume 99, Number 4, September 2009 , pp. 1097-1118(22)

Publisher: American Economic Association

Key:

- Free Content

- New Content

- Subscribed Content

- Free Trial Content

Abstract:

Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.

Document Type: Research article

DOI: 10.1257/aer.99.4.1097

The full text electronic article is available for purchase. You will be able to download the full text electronic article after payment.

$19.00 plus tax Refund Policy