sentiments in svars this paper investigates the contribution of sentiments shocks to us fluctuations in a structural var setup with long medium and short run restrictions sentiments shocks are identified as shocks orthogonal to fundamentals that accounts for most of the variance of confidence we assess our identification procedure from simulation experiments and show that it performs pretty well from actual data we obtain that contrary to news shocks on total factor productivity sentiments shocks explain very little of quantities and prices sentiments shocks mostly appear as an idiosyncratic component of confidence these results are robust to various perturbations of the benchmark model

animal spirits and household spending in europe and the us abstract we investigate whether consumer confidence has an independent effect on household spending first we determine a common set of factors that drive both consumer confidence and household spending next we interpret the non systematic residuals in the country consumer confidence equations as a proxy for animal spirits and include this proxy in the spending equations as an additional explanatory variable our results suggest that animal spirits exist and may have a considerable impact on spending growth in europe and the us

information rigidities and the news adjusted output gap a vector autoregressive model of actual output and expected output obtained from surveys is used to test for information rigidities and to provide a characterisation of output dynamics that accommodates these information structures news on actual and expected outputs is decomposed to identify innovations understood to have short lived effects and these are used with the model to derive a news adjusted output gap measure the approach is applied to us data over 1970q1 2014q2 and the new gap measure is shown to provide a good leading indicator of inflation

predicting early data revisions to u s gdp and the effects of releases on equity markets the effects of data uncertainty on real time decision making can be reduced by predicting data revisions to u s gdp growth we show that survey forecasts efficiently predict the revision implicit in the second estimate of gdp growth but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the data revision implied by the release of the third estimate we use forecasting models to measure the impact of surprises in gdp announcements on equity markets and to analyze the effects of anticipated future revisions on announcement day returns we show that the publication of better than expected third release gdp figures provides a boost to equity markets and if future upward revisions are expected the effects are enhanced during recessions

identifying noise shocks a var with data revisions we propose a new var identication strategy to study the impact of noise shocks 5 on aggregate activity we do so exploiting the informational advantage the econo6 metrician has relative to the economic agent the latter who is uncertain about the 7

where is the ge consumption dynamics in dsges we offer a partial equilibrium perspective on the behavior of consumption in dynamic stochastic general equilibrium dsge models we consider a benchmark dynamic general equilibrium model and show that a standard calibration implies that the real interest rate is essentially fixed one manifestation of this feature is that with separable preferences the reaction of consumption to total factor productivity tfp shocks is flat the random walk permanent income hypothesis holds almost exactly pretty much as in a partial equilibrium consumption savings problem these results help explain the prominent role of aggregate demand and how it is achieved in modern dsge analysis

booms and busts with dispersed information abstract dispersed information can generate booms and busts in economic activity boom bust dynamics appear when firms are initially over optimistic about demand due to a noisy private news consequently they overproduce which generates a boom and depresses their markups because the news is private firms cannot relate these low markups to aggregate optimism as low markups can also signal low demand this overturns their expectations generating a bust we emphasize a novel role for imperfect common knowledge dispersed information makes firms ignorant about their competitors actions which makes them confuse high noise driven supply with low fundamental demand

identifying noise shocks abstract we study identifying restrictions that allow news and noise shocks to be recovered empirically within a bayesian structural varma framework in population the identification scheme we consider exactly recovers news and noise shocks monte carlo evidence further demonstrates its excellent performance as it recovers the key features of the postulated data generation process the real business cycle model of barsky and sims 2011 augmented with noise shocks about future total factor productivity tfp with great precision in an empirical application evidence suggests that tfp noise shocks play a minor role in macroeconomic fluctuations

news shocks in the data olympic games and their macroeconomic effects we examine the macroeconomic effects of bidding for the olympic games using panel data for 188 countries during the period 1950 2009 our findings confirm that economies react to news shocks investment consumption and output significantly increase 9 to 7 years before the actual event in bidding countries hosting countries also experience significant increases in investment consumption and output 5 to 2 years before the hosting of the games mapping the olympics into a macroeconomic model we show that we can match our empirical findings if we assume that an olympic bid represents news about increases in government investment

the effects of surprise and anticipated technology changes on international relative prices and trade abstract this paper argues that it is important to distinguish surprise and anticipated components of total factor productivity tfp when we study the international transmission of tfp shocks we document that surprise and anticipated shocks to us tfp induce distinct dynamics for international relative prices the real exchange rate and the terms of trade and international trade real exports real imports and the trade balance our empirical findings can reconcile some conflicting empirical results in the literature and hence lead to a better understanding of the international transmission of tfp shocks in addition we evaluate a standard international macroeconomic model and discuss the mechanisms that may help to replicate our empirical findings

permanent and transitory movements in labor income an explanation for excess smoothness in consumption many have argued that if labor income is difference stationary the permanent income hypothesis predicts that consumption should be relatively volatile in u s aggregate data labor income is well characterized as having a unit root however consumption turns out to be relatively smooth this anomaly is known as deaton s paradox i resolve deaton s paradox by providing decompositions of labor income into permanent and transitory components these preserve the univariate dynamic properties of labor income however when agents distinguish permanent and transitory movements in their labor income as the rational expectations hypothesis asserts they should the permanent income hypothesis correctly predicts the observed smoothness in consumption

energy research and r d indicators an lmdi decomposition analysis for the iea big 5 in energy research abstract the literature has always shown that there are two important factors in the improvement of a country s research output gross domestic product gdp and r d expenditures taking the discussion a step further and in an effort to provide policy recommendations on what is needed to boost research capacity this paper aims at decomposing the change in energy research papers of five countries australia canada germany uk and us into four factors gdp r d intensity ratio of total r d to gdp energy r d rate of return or productivity number of energy related papers per unit of energy r d expenditure and energy r d priority share of energy r d to total r d expenditure the findings show a general trend in the sign of the four effects on research for all five countries energy r d productivity energy r d priority and gdp are mostly found to be positive contributors while the r d intensity a negative one this pattern has exceptions that are more prominent during periods where economic growth is constrained for example during 2008 09 the results have policy implications not only for these five countries but also for developing countries low gdp that aim at contributing more to the energy related research output globally

tfp news and sentiments the international transmission of business cycles we propose a novel identification scheme for a non technology business cycle shock that we label sentiment this is a shock orthogonal to identified surprise and news tfp shocks that maximizes the short run forecast error variance of an expectational variable alternatively a gdp forecast or a consumer confidence index we then estimate the international transmission of three identified shocks surprise tfp news of future tfp and sentiment from the us to canada the us sentiment shock produces a business cycle in the us with output hours and consumption rising following a positive shock and accounts for the bulk of short run business cycle fluctuations in the us the sentiment shock also has a significant impact on canadian macro aggregates in the short run it is more important than either the surprise or the news tfp shocks in generating business cycle comovement between the us and canada accounting for up to 50 of the forecast error variance of canadian gdp and about one third of canadian hours imports and exports the news shock is responsible for some comovement at 5 10 years and surprise tfp innovations do not generate synchronization

financial innovation the discovery of risk and the u s credit crisis abstract financial innovation and overconfidence about the risk of new financial products were key factors behind the 2008 u s credit crisis we show that a model with a collateral constraint in which learning about the risk of a new financial environment interacts with fisherian amplification produces a boom bust cycle in debt asset prices and consumption early realizations of a high borrowing ability regime turn agents optimistic about the persistence probability of this regime conversely the first realization of a low borrowing ability regime turns agents unduly pessimistic the model predicts large increases in household debt land prices and excess returns during 1998 2006 followed by a collapse

news shocks in open economies evidence from giant oil discoveries this article explores the effect of news shocks in open economies using worldwide giant oil and gas discoveries as a directly observable measure of news shocks about future output the delay between a discovery and production is on average four to six years we first analyze the effects of a discovery in a two sector small open economy model with a resource sector we then estimate the effects of giant oil and gas discoveries on a large panel of countries our empirical estimates are consistent with the predictions of the model after an oil or gas discovery the current account and saving rate decline for the first five years and then rise sharply during the ensuing years investment rises robustly soon after the news arrives whereas gdp does not increase until after five years employment rates fall slightly and remain low for a sustained period

news noise and fluctuations an empirical exploration a common view of the business cycle gives a central role to anticipations consumers and firms continuously receive information about the future which is sometimes news and sometimes just noise based on this information consumers and firms choose spending and because of nominal rigidities spending affects output in the short run if ex post the information turns out to be news the economy adjusts gradually to a new level of activity if it turns out to be just noise the economy returns to its initial state therefore the dynamics of news and noise generate both short run and long run changes in aggregate activity this view appears to capture many of the aspects often ascribed to fluctuations the role of animal spirits in affecting demand spirits coming here from a rational reaction to information about the future the role of demand in affecting output in the short run together with the notion that in the long run output follows a natural path determined by fundamentals in this paper we examine whether this view is consistent with the data we reach three main conclusions the first two methodological the third substantive structural vars typically cannot recover news and noise shocks the reason is straightforward if agents face a signal extraction problem and are unable to separate news from noise then the econometrician faced with either the same data as the agents or a subset of these data cannot do it either while structural estimation methods cannot recover the actual time series for news and noise shocks either they can recover underlying structural parameters and thus the relative role and dynamic effects of news and noise shocks estimation of both a simple model and then of a more elaborate dsge model suggest that agents indeed solve such a signal extraction problem and that noise shocks play an important role in determining short run dynamics recent efforts to estimate business cycle models in which expectations about the future play an important role include christiano et al 2010 and schmitt grohe and uribe 2012 those papers follow the approach of jaimovich and rebelo 2009 and model news as perfectly anticipated productivity changes that will occur at

noisy news and exchange rates a svar approach abstract this paper introduces noisy news shocks into a model of exchange rate determination to measure the impact of these shocks using a svar agents in the foreign exchange market make decisions with imperfect information about economic fundamentals driving interest rate differentials between countries in that they must rely on a noisy signal of future interest rates i apply the framework to the usd gbp nominal exchange rate for the period 1986 2013 results show that noisy news explains approximately one fifth of the forecast error variance in the nominal exchange rate with noise accounting for double 12 that of news 6 a historical decomposition of the exchange rate indicates that noise shocks are especially important during periods of changing monetary policy e g the 1990 easing and 2001 tightening of u s monetary policy and the unconventional monetary policies surrounding the financial crisis of 2008

a risk centric model of demand recessions and speculation we provide a continuous time risk centric representation of the new keynesian model which we use to analyze the interactions between asset prices financial speculation and macro economic outcomes when output is determined by aggregate demand in principle interest rate policy is highly effective in dealing with shocks to asset valuations however in practice monetary policy faces a wide range of constraints if these constraints are severe a decline in risky asset valuations generates a demand recession this reduces earnings and generates a negative feedback loop between asset prices and aggregate demand in the recession phase average beliefs matter not only because they affect asset valuations but also because they determine the strength of the amplification mechanism in the ex ante boom phase belief disagreements or heterogeneous asset valuations matter because they induce investors to speculate this speculation exacerbates the crash by reducing high valuation investors wealth when the economy transitions to recession which depresses wealth weighted average beliefs macroprudential policy that restricts speculation in the boom can pareto improve welfare by increasing asset prices and aggregate demand in the recession

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

identifying fiscal inflation abstract fiscal theorists warn about the risk of future inflation as a consequence of fiscal imbalances in the us because actual inflation remains historically low and data on inflation expectations do not corroborate such risks warnings for fiscal inflation are often ignored in policy and academic circles this paper shows that a canonical nk dsge model enables identifying an anticipated component of inflation expectations that is closely related to fiscal policy estimation results suggest that fiscal inflation concerns have induced a 1 6 points increase in long run inflation since 2001 the model also rationalizes why data on inflation expectations do not reveal such concerns outright

do shocks to animal spirits cause output fluctuations we evaluate whether shocks to animal spirits affect real outcomes at business cycle frequencies using data on consumer confidence and region and state level coincident activity indexes in a vector autoregression var with long run restrictions we assume that animal spirits shocks do not affect the long run level of activity innovations in fundamentals explain most variation in the level of activity but animal spirits have economically significant effects at business cycle frequencies a positive innovation in animal spirits causes real activity to rise by between 0 2 and 0 6 in the medium term and animal spirits may explain up to about half of real fluctuations in the medium run

the expectations driven us current account during the 1990s and 2000s survey expectations of long run output growth for the u s relative to the rest of the world were highly correlated with the u s current account and thus with global imbalances we show that this finding is to a large extent predicted by a two region stochastic growth model simulated using expected trend growth based on surveys in line with the intertemporal approach to the current account a major part of the buildup and subsequent reversal of the u s current account de cit appears to be consistent with an optimal response of households and firms to changing growth prospects this article is protected by copyright all rights reserved

mood swings and business cycles evidence from sign restrictions this paper provides new evidence that bouts of optimism and pessimism are an important source of u s business cycles using the identification schemes based on sign restrictions we document that identified optimism and pessimism shocks account for about 30 of u s business cycle fluctuations in hours and output in addition our empirical findings are consistent with the intensive and extensive margin adjustments in the u s labor market over business cycles providing further support to optimism shocks being an important source of u s business cycles the identified optimism shocks are at least partially rational as total factor productivity is found to rise 8 12 quarters after an initial bout of optimism while this later finding is consistent with some previous findings in the news shock literature we cannot rule out that such episodes reflect self fulfilling beliefs

fiscal foresight and information flows news or foresight about future economic fundamentals can create rational expectations equilibria with non fundamental representations that pose substantial challenges to econometric efforts to recover the structural shocks to which economic agents react using tax policies as a leading example of foresight simple theory makes transparent the economic behavior and information structures that generate non fundamental equilibria econometric analyses that fail to model foresight will obtain biased estimates of output multipliers for taxes biases are quantitatively important when two canonical theoretical models are taken as data generating processes both the nature of equilibria and the inferences about the effects of anticipated tax changes hinge critically on hypothesized information flows different methods for extracting or hypothesizing the information flows are discussed and shown to be alternative techniques for resolving a non uniqueness problem endemic to moving average representations

fundamentals news global liquidity and macroprudential policy we study optimal macroprudential policy in a model in which unconventional shocks in the form of news about future fundamentals and regime changes in world interest rates interact with collateral constraints in driving the dynamics of financial crises these shocks strengthen incentives to borrow in good times i e when good news about future fundamentals coincide with a low world interest rate regime thereby increasing vulnerability to crises and enlarging the pecuniary externality due to the collateral constraints quantitatively an optimal schedule of macroprudential debt taxes can lower the frequency and magnitude of financial crises but the policy is complex because it features significant variation across interest rate regimes and news realizations

technological revolutions and the three great slumps a medium run analysis abstract the great recession the great depression and the japanese slump of the 1990s were all preceded by periods of major technological innovation which happened about 10 years before the start of the decline in economic activity we estimate a model with noisy news we find that beliefs about long run income adjust to permanent shifts in productivity with an important delay the estimation tells a common and simple story for the observed dynamics of productivity and consumption on a 20 to 25 year window our analysis highlights the advantages of a look at this data from the point of view of the medium run

financial frictions investment and tobin s q we develop a model of investment with financial constraints and use it to investigate the relation between investment and tobin s a firm is financed partly by insiders who control its assets and partly by outside investors when their wealth is scarce insiders earn a rate of return higher than the market rate of return i e they receive a quasi rent on invested capital this rent is priced into the value of the firm so tobin s is driven by two forces changes in the value of invested capital and changes in the value of the insiders future rents per unit of capital this weakens the correlation between and investment relative to the frictionless benchmark we present a calibrated version of the model which due to this effect generates realistic correlations between investment a nd cashflow

consumer misperceptions uncertain fundamentals and the business cycle abstract this paper estimates the importance of shocks to consumer misperceptions noise shocks for u s business cycle fluctuations i embed imperfect information as in lorenzoni 2009 into a smets and wouters 2007 type dsge model agents only observe aggregate productivity and a signal about the permanent component contaminated with noise based on this information agents form beliefs about the temporary and the permanent component of productivity shocks to the signal noise shocks trigger aggregate fluctuations unrelated to changes in productivity bayesian estimation shows that noise shocks explain up to 14 percent of output and up to 25 percent of consumption fluctuations nominal rigidities and the specification of the monetary policy rule are crucial for the importance of noise shocks these features help to resolve conflicting results in the previous literature

investment shocks and business cycles abstract the origins of business cycles are still controversial among macroeconomists this paper contributes to this debate by studying the driving forces of fluctuations in an estimated new neoclassical synthesis model of the u s economy in this model most of the variability of output and hours at business cycle frequencies is due to shocks to the marginal efficiency of investment imperfect competition and to a lesser extent technological frictions are the key to their transmission although labor supply shocks explain a large fraction of the fluctuations in hours at very low frequencies they are irrelevant over the business cycle this finding is important because the microfoundations of these disturbances are widely regarded as unappealing

the expectational effects of news in business cycles evidence from forecast data abstract news shocks work through changes in expectations so data on expectations contain important information for identification of news shocks we demonstrate this by estimating a dsge model augmented with news shocks using u s data between 1955q1 and 2006q4 news shocks especially those with long anticipation horizons generate modest output fluctuations before fundamental changes the precision of the estimated news shocks greatly improves when data on expectations are used these results arise because data on expectations are smooth and do not resemble actual output

the limits of forward guidance abstract the viability of forward guidance as a monetary policy tool depends on the horizon over which it can be communicated and its influence on expectations over that horizon this paper develops and estimates a model of imperfect central bank communications and uses it to measure how effectively the fed has managed expectations about future interest rates and the influence of its communications on macroeconomic outcomes standard models assume central banks have perfect control over expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so called forward guidance puzzle our estimated model suggests that the fed has limited ability to affect expectations at horizons that are sufficiently long to give rise to the forward guidance puzzle additionally imperfect communication has a significant impact on the propagation of forward guidance finally we develop a novel decomposition of the response of the economy to forward guidance the decomposition shows that empirically plausible imperfect forward guidance has a quantitatively important role bringing forward the effects of future rate changes and that poor communications have been a source of macroeconomic volatility

ambiguous information permanent income and consumption fluctuations abstract this paper studies asymmetric responses in consumption where the asymmetries are endogenously generated by agents preferences and incomplete knowledge about information quality agents form expectations about the future based on incomplete information which is assumed to be ambiguous and these future expectations distorted by ambiguity affect spending asymmetrically with a noisy signal of uncertain quality consumption features asymmetric responses the absolute size of the responses depends on whether the signal delivers good or bad news i estimate the model on the data for g7 countries by maximum likelihood and the estimation results suggest that the ambiguity mechanism plays a modest role in driving observed skewness in the data

actively learning by pricing a model of an experimenting seller this article presents a model of a rational seller who is actively learning the slope of his demand curve via his pricing strategy consequently this seller optimally experiments with his price resulting price patterns show a tendency for discreteness as observed in the data which has proved to be a major challenge to most price setting models the experimentation motive can also replicate the observation that prices are more volatile than costs as well as the presence of many idiosyncratic price changes in the data it can do so without a need to assume the existence of large idiosyncratic shocks

identification and estimation in non fundamental structural varma models the basic assumption of a structural vector autoregressive moving average svarma model is that it is driven by a white noise whose components are uncorrelated or independent and can be interpreted as economic shocks called structural shocks when the errors are gaussian independence is equivalent to non correlation and these models face two identification issues the first identification problem is static and is due to the fact that there is an infinite number of linear transformations of a given random vector making its components uncorrelated the second identification problem is dynamic and is a consequence of the fact that even if a svarma admits a non invertible moving average ma matrix polynomial it may feature the same second order dynamic properties as a varma process in which the ma matrix polynomials are invertible the fundamental representation the aim of this paper is to explain that these difficulties are mainly due to the gaussian assumption and that both identification challenges are solved in a non gaussian framework if the structural shocks are assumed to be instantaneously and serially independent we develop new parametric and semi parametric estimation methods that accommodate non fundamentalness in the moving average dynamics the functioning and performances of these methods are illustrated by applications conducted on both simulated and real data

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

consumption inequality and income uncertainty this paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting it highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality we derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks household data from britain for the period 1968 1992 are used to show a strong growth in transitory inequality toward the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality

christopher a sims and vector autoregressions three decades ago christopher a sims suggested that vector autoregressions vars are useful statistical devices for evaluating alternative macroeconomic models his suggestion has stood the test of time well in the early days vars played an important role in the evaluation of alternative models they continue to play that role today

sentiment and the u s business cycle abstract psychological factors are commonly believed to play a role on cyclical economic fluctuations but they are typically omitted from state of the art macroeconomic models this paper introduces sentiment in a medium scale dsge model of the u s economy and tests the empirical contribution of sentiment shocks to business cycle fluctuations the assumption of rational expectations is relaxed the paper exploits instead observed data on expectations in the estimation the observed expectations are assumed to be formed from a near rational learning model agents are endowed with a perceived law of motion that resembles the model solution under rational expectations but they lack knowledge about the solution s reduced form coefficients they attempt to learn those coefficients over time using available time series at each point in the sample and updating their beliefs through constant gain learning in each period however they may form expectations that fall above or below those implied by the learning model these deviations capture excesses of optimism and pessimism which can be quite persistent and which are defined as sentiment in the model different sentiment shocks are identified in the empirical analysis waves of undue optimism and pessimism may refer to expected future consumption future investment or future inflationary pressures the results show that exogenous variations in sentiment are responsible for a sizable above forty percent portion of historical u s business cycle fluctuations sentiment shocks related to investment decisions which evoke keynes animal spirits play the largest role when the model is estimated imposing the rational expectations hypothesis instead the role of structural investment specific and neutral technology shocks significantly expands to capture the omitted contribution of sentiment

news driven business cycles insights and challenges there is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations the news view of business cycles offers a formalization of this perspective in this paper we discuss mechanisms by which changes in agents information due to the arrival of news can cause business cycle fluctuations driven by expectational change and we review the empirical evidence aimed at evaluating their relevance in particular we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations while at the same time we emphasize the many challenges that must be addressed before a proper assessment of the role of news in business cycles can be established jel d83 d84 e13 e32 o33

an exploration into pigou s theory of cycles abstract this paper explores a theory of business cycles in which recessions and booms arise due to difficulties encountered by agents in properly forecasting the economy s future needs in terms of capital the idea has a long history in the macroeconomic literature as reflected by the work of pigou industrial fluctuation macmillan london 1926 the contribution of this paper is twofold first we illustrate the type of general equilibrium structure that can give rise to such phenomena second we examine the extent to which such a model can explain the observed pattern of u s recessions frequency depth without relying on technological regress we argue that such a model offer a framework for understanding elements of both the recent u s recession and of the asia downturns of the late 1990s

simulation for assessing the liberalization of biofuels abstract global biofuel consumption has been growing in recent years as different countries worldwide have been exploring alternatives and complements to gasoline and diesel fuel for transport this is due to a hike in oil prices and their increasing volatility as well as both a high dependence of the transport sector on oil and also because arguably the supply chain of biofuels emits less co2 than that of fossil fuels biofuels have been available around the world for a while with the aid of some government support brazil pioneered this renewable solution for transport from the early 1930s as the country had little access to local fuels while oil and other alternatives became more expensive biofuels are currently widely considered as part of the solution to affordable fuels for transport this paper makes use of a system dynamics model to analyse the current leading policies aiming at increasing the penetration of biofuels in this context and given multiple uncertainties that include technology evolution and fuel prices scenario analysis has been considered for the examination of different extreme though plausible futures simulations under extreme scenarios helped in assessing the possibility of removing incentives that is leaving decisions to an open market and a partial reduction of subsidies this paper concludes that for the case of colombia the potential of biofuels seems promising

more than a feeling confidence uncertainty and macroeconomic fluctuations economists observers and policy makers often emphasize the role of sentiment as a potential driver of the business cycle in this paper we provide three contributions to this debate first we give an overview of the recent literature on the nexus between sentiment considering both confidence and uncertainty and economic activity second we review existing empirical measures of sentiment in particular consumer confidence stock market volatility smv and economic policy uncertainty epu on monthly data for 27 countries 1985 2016 third we identify some new stylized facts based on international evidence while different measures are surprisingly lowly correlated on average in each country they are typically highly positively correlated across countries suggesting the existence of a global factor or sizeable international spillovers of sentiment consumer confidence has the closest co movement with economic and financial variables and most of the correlations are contemporaneous or forward looking consistent with the view that economic sentiment is indeed a driver of activity

information variables for monetary policy in an estimated structural model of the euro area a small scale new keynesian model for the euro area is estimated with maximum likelihood under the assumptions of imperfect information and discretionary monetary policy the estimated parametrization of this widely used dynamic stochastic model unveils the monetary authorities objectives and the information content of two indicator variables monetary aggregates and real unit labour costs the results highlight a significant policy concern about interest rate smoothing and inflation almost no concern for output gap stabilization emerges regarding indicator variables unit labour costs provide information on potential output that is helpful for stabilization policy no useful information role emerges for monetary aggregates

a theory of demand shocks this paper presents a model of business cycles driven by shocks to consumer expectations regarding aggregate productivity agents are hit by heterogeneous productivity shocks they observe their own productivity and a noisy public signal regarding aggregate productivity the public signal gives rise to noise shocks which have the features of aggregate demand shocks they increase output employment and inflation in the short run and have no effects in the long run numerical examples suggest that the model can generate sizable equilibrium dsge models of the business cycle include a large number of shocks to technol ogy monetary policy preferences etc but typically do not include expectational shocks as independent drivers of short run fluctuations 1 this paper explores the idea of expectation driven cycles looking at a model where technology determines equilibrium output in the long run and consumers receive noisy signals about technology in the short run the presence of noisy signals produces expectational errors this paper studies the role of these expectational errors in gener ating volatility at business cycle frequencies the model is based on two ingredients first consumers take time to recognize permanent changes in aggregate fundamentals although they may have good information on the current state of the individual firm or sector where they operate they have only limited information regarding the long run determinants of aggregate activity second consumers have access to public information that is relevant to estimate long run productivity this includes news about technological innovations publicly released macroeconomic and sectoral statistics financial market prices and public statements by policy makers however these signals provide only a noisy forecast of the long run effects of technological innovations this opens the door to noise shocks which induce consumers to temporarily overestimate or underestimate the productive capacity of the economy

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

macro prudential taxation in good times abstract we analyze the optimal macroprudential policy under the presence of persistent permanent shocks which convey information about future growth in this context crises are characterized by long periods with positive shocks that eventually revert rendering the collateral constraint binding and triggering deleveraging in this environment it is optimal to tax borrowing during good times and let agents act freely leaving the allocations undistorted including borrowing and lending when the economy reverts to a bad state we contrast our findings to the case of standard shocks to the level of income where it is optimal to tax debt in bad times when agents need to borrow the most for precautionary savings motives also taxes are used much less often and are around one tenth of those under level shocks

noisy fiscal policy abstract this paper investigates the macroeconomic effects of fiscal policy in a setting in which private agents receive noisy signals about future shocks to government expenditures we show how to empirically identify the relative weight of news and noise shocks to government spending and compute the level of noise for canada the uk and the us we then investigate the quantitative implications of imperfect fiscal policy information using a medium scale dsge model we find that when the government seeks to implement a persistent change in expected public spending the existence of noise as estimated using actual data implies a sizable difference in fiscal multipliers compared to the perfect fiscal foresight case

information animal spirits and the meaning of innovations in consumer confidence we show that unexplained innovations in several variables representing survey responses to forwardlooking questions on the michigan survey of consumers have powerful prognostic implications for the future paths of macroeconomic variables we attempt to distinguish the hypothesis that these impulse responses indicate a causal channel from autonomous movements in sentiment to economic outcomes the animal spirits view from the alternative interpretation that the surprise confidence movements summarize information about future economic prospects the information view in natural rate models animal spirits shocks are associated with overshooting of among other variables consumption that attenuates when agents come to grips with their overreaction while information shocks about the long future are followed by gradual movements in macroeconomic variables that are not subsequently reversed in a baseline vector autoregression involving consumption income and confidence the data come down sharply in favor of the information view the impulse responses of consumption and gdp show no tendency to attenuate even after a number of years further confidence innovations have strong implications for labor productivity many quarters into the future in somewhat larger vars with an information block that includes inflation and or stock prices the impulse responses to confidence innovations continue to have the permanent shape that defines information shocks but they are smaller in magnitude we demonstrate that this is due to the fact that both inflation and stock price innovations have prognostic implications for future productivity that are very similar to the implications of innovations in confidence addition of unemployment to the system induces a transitory component that changes the shape of the impulse responses and somewhat weakens the previously airtight case against animal spirits but it does not provide constructive evidence of such effects

poverty human development and growth an emerging consensus this paper considers several issues relevant to the debate on the extent to which poverty or development progress in general should be measured by income or by a broader set of objectives issues covered here are practical implications of the two approaches for poverty reduction efforts the impact of growth on basic social indicators and how national achievement on social indicators is best measured sri lanka and pakistan countries often cited in this debate are used as examples

reconciling hayek s and keynes views of recessions recessions often happen after periods of rapid accumulation of houses consumer durables and business capital this observation has led some economists most notably friedrich hayek to conclude that recessions often reflect periods of needed liquidation resulting from past over investment according to the main proponents of this view government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process as doing so would simply result in a needed adjustment being postponed in contrast ever since the work of keynes many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy in this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets the model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that keynes and hayek s views of recessions may be closely linked in our framework interventions aimed at stimulating aggregate demand face a trade off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions but where some stimulative policies may nevertheless remain desirable

on the sources of information about latent variables in dsge models abstract latent variables are ubiquitous in macroeconomics and structural models are often used to characterize and estimate them from empirical data this paper addresses the problem of identifying the key sources of information with respect to latent variables in dynamic stochastic general equilibrium models to that end i show how to evaluate the information content of a set of observable variables with respect to a given latent variable the methodology enables researchers to measure and compare the informational contribution of different observables and identify the most informative ones thus it provides a framework for a rigorous treatment of such issues which are often discussed in an informal manner in the literature the methodology is illustrated with an assessment of the informational importance of asset prices with respect to news shocks in the business cycle model developed by schmitt grohe and uribe 2012

bad news in the great depression the great recession and other u s recessions a comparative study in economic recessions consumption usually drops in tandem with other aggregate quantities as output or employment following the permanent income hypothesis these drops can be rationalized by the idea that consumers have pessimistic views about their long run income using a standard signal extraction model we show that this pessimism can be due either to a persistent fall of aggregate productivity before and during the recession signaling a future decline of income or to other negative information unrelated to contemporaneous fundamentals which we label bad news we classify u s recessions from 1919 to 2015 according to a bad news index reflecting this negative information we find that both the great depression and the great recession score highest in this index the index is such that we can rule out that this is due merely to the length or the depth of these recessions instead these two recessions are similar in that both were aggravated by a wave of pessimism about future income which cannot be related to contemporaneous fundamentals

what s news in news a cautionary note on using a variance decomposition to assess the quantitative importance of news shocks abstract this paper points out a conceptual difficulty in using a variance decomposition to assess the quantitative importance of news shocks a variance decomposition will attribute to news shocks movements in endogenous variables driven both by news about future exogenous fundamentals that has yet to materialize what i call pure news as well as movements driven by realized changes in fundamentals that were anticipated in the past what i call realized news i present a stylized model in which news about yet unrealized changes in fundamentals is irrelevant for output dynamics but in which a variance decomposition may nevertheless attribute a large share of the variance of output to news shocks i then revisit the quantitative importance of news in the model of schmitt grohe and uribe 2012 in their model news shocks account for 40 percent of the variance of output growth but this is mostly driven by realized news

emerging market business cycles learning about the trend abstract emerging market business cycles feature a higher variability of consumption relative to output and a strongly countercyclical trade balance an equilibrium business cycle model in which agents learn to distinguish between the permanent and transitory components of total factor productivity shocks using the kalman filter accounts for these features calibrated to mexico the model accounts for the behavior of consumption and the trade balance for a wide range of variability and persistence of permanent shocks relative to transitory shocks estimation for mexico and canada suggests more severe informational frictions in emerging markets than in developed economies