aggregate investment in a business cycle model with adjustment costs abstract this paper explains the observed cyclical variability of aggregate investment and the counter movements with respect to its relative price in the us data using a stochastic growth model with adjustment costs the exogenous disturbances of the model represent preference shocks productivity innovations and changes on the relative price between consumption and investment goods simulations of the model imply that the volatility of those relative price innovations need to be three to four times larger than the standard solow residual innovations in order to match the model with the data

news shock firm dynamics and business cycles evidence and theory abstract the literature of expectation driven business cycles has overlooked the role played by endogenous entry this paper documents empirically news shock as a major source of fluctuations in firm dynamics and comovement between firm entry and gdp using structural vector auto regressions we then develop a tractable dynamic stochastic general equilibrium model to study the propagation mechanism assuming fixed operating costs for incumbents and decreasing survival rates for entrants our quantitative prediction closely matches the positive comovement between firm entries and core macroeconomic indicators upon news shock these results remain robust at the sectoral level when the baseline model is extended to a two sector setup

policy change and learning in the rbc model what is the impact of surprise and anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations we examine this issue using the standard stochastic real business cycle model with lump sum taxes agents combine knowledge about future policy with econometric forecasts of future wages and interest rates dynamics under learning can have large impact effects and a gradual hump shaped response and tend to be prominently characterized by oscillations not present under rational expectations these fluctuations reflect periods of excessive optimism or pessimism followed by subsequent corrections

expectations and economic fluctuations an analysis using survey data abstract using survey based measures of future u s economic activity from the livingston survey and the survey of professional forecasters we study how changes in expectations and their interaction with monetary policy contribute to fluctuations in macroeconomic aggregates we find that changes in expected future economic activity are a quantitatively important driver of economic fluctuations a perception that good times are ahead typically leads to a significant rise in current measures of economic activity and inflation we also find that the short term interest rate rises in response to expectations of good times as monetary policy tightens

intersectoral labor immobility sectoral comovement and news shocks sectoral comovement of output and hours worked is a prominent feature of business cycle data however most two sector neoclassical models fail to generate this sectoral comovement we construct and estimate a two sector neoclassical dynamic stochastic general equilibrium dgse model generating sectoral comovement in response to both anticipated and unanticipated shocks the key to our model s success is a significant degree of intersectoral labor immobility which we estimate using data on sectoral hours worked furthermore we demonstrate that imperfect intersectoral labor mobility provides a better explanation for the sectoral comovement than an alternative model emphasizing the role of labor supply wealth effects

nominal rigidities monetary policy and pigou cycles capturing the boom phase of pigou cycles and resolving the comovement problem require positive sectoral comovement this article addresses these observations using a two sector new keynesian model price rigidities dampen movements in the relative price of durables following a monetary policy shock durables and non durables are estimated to be complements in utility allowing for a resolution of the comovement problem for modest degrees of price rigidity nominal rigidities also make firms forward looking in their pricing behaviour which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a pigou cycle

news driven business cycles in small open economies the focus of this paper is on news driven business cycles in small open economies we make two significant contributions first we develop a small open economy model where the presence of financial frictions permits the replication of business cycle co movements in response to news shocks second we use var analysis to identify news shocks using data on four advanced small open economies we find that expected shocks about the future total factor productivity generate business cycle co movements in output hours consumption and investment we also find that news shocks are associated with countercyclical current account dynamics our findings are robust across a number of alternative identification schemes

testing the technology interpretation of news shocks this article presents further evidence on the hypothesis of news driven business cycles i use a structural vector error correction model vecm approach to identify news shocks as in beaudry and lucke bl 2010 i document three facts first news shocks identified by bl are granger causal for us patent data second bl s analysis applied to german macro data reveals very similar patterns activity is largely driven by news and news shocks explain a sizable and increasing share of total factor productivity tfp variance at long horizons and third german news shocks are granger causal for german patent data and the pattern is again very similar to the us since patent data in the us and germany are almost uncorrelated the similarity is striking and strongly suggests a technology interpretation of news shocks

the effects of permanent technology shocks on hours can the rbc model fit the var evidence abstract i show that a standard rbc model can be used to explain why hours per capita decrease in response to a permanent technology shock when hours enter a vector autoregressive var in first differences and why hours increase when hours enter in levels there are two parts to my argument first empirical evidence suggests that a positive permanent technology shock goes together with a persistent increase in the expected growth rate and the rbc model predicts this increase in the expected growth rate to have a downward effect on hours worked and can even result in a sizeable negative response of hours second first differencing hours in vars results in a considerable downward bias using the estimated parameters for the technology process i find i that the true model response of hours is positive and ii that when the var methodology is used with finite samples of simulated data then the hours response is negative positive when hours enter the var in first differences levels

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

corporate governance provisions and firm ownership firm level evidence from eastern europe we study differences in the use of two corporate governance provisions e cumulative voting and proxy by mail voting e in a sample of about 220 firms located in four eastern european countries after controlling for other firm characteristics we find that firms that have a large minority blockholder are more likely to allow cumulative voting we do not find any significant relationship between the use of these corporate governance provisions and foreign ownership we conclude that the use of cumulative voting is associated with the presence of large minority shareholders 2006 published by elsevier ltd jel classification g34 p2

relative prices complementarities and comovement among components of aggregate expenditures abstract recent work suggests that the standard real business cycle framework has difficulty accounting for co movement among aggregate expenditure components when they are disaggregated even slightly to include business and household investment in addition relative prices of these goods have displayed substantial variation over the post war period this paper reports that incorporating a source of empirically plausible relative price variability makes the framework s implications for comovement even worse compounding the comovement problem the possibility that complementarities in the production of household and business capital may help account for observed co movement is considered the results suggest that complementarities improved the framework s empirical performance

stock prices news and economic fluctuations comment beaudry and portier 2006 propose an identification scheme to study the effects of news shocks about future productivity in vector error correction models vecms this comment shows that when applied to their vecms with more than two variables the identification scheme does not have a unique solution the problem arises from a particular interplay of cointegration assumptions and longrun restrictions jel e32 e44 g12 g14 in a highly influential paper beaudry and portier 2006 estimate vector error correction models vecms on us data and find that shocks generating a stock market boom but no contemporaneous movement in total factor productivity tfp henceforth called tfp news are closely related to shocks driving long run variations in tfp moreover these tfp news shocks lead to increases in consumption investment output and hours on impact and constitute an important source of business cycle fluctuations these results run counter to basic dynamic stochastic general equilibrium models and have sparked a new literature attempting to generate news driven positive comovement among macroeconomic aggregates 1 this comment shows that in the vecms with more than two variables estimated by beaudry and portier 2006 their identification scheme fails to determine tfp news yet these higher dimension systems are crucial to quantify the business cycle effects of tfp news 2 the identification problem arises from the interplay of two assumptions first the beaudry portier identification scheme called bp restrictions from here on requires that one of the nonnews shocks has no permanent impact on either tfp or consumption second the vecms estimated by beaudry and portier 2006 impose that tfp and consumption are cointegrated this cointegration means that tfp and consumption have the same permanent component which makes one

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

functional equivalence between intertemporal and multisectoral investment adjustment costs abstract two types of adjustment cost specifications coexist in macroeconomic models with investment intertemporal adjustment costs which involve a nonlinear substitution between capital and investment in capital accumulation and multisectoral costs which are captured by a nonlinear transformation between consumption and investment this paper demonstrates a functional equivalence between these two specifications one surprising result is that an increase in multisectoral adjustment costs can be equivalent to a decrease in intertemporal adjustment costs depending upon the size of the intertemporal costs we then observe that the functional equivalence implies a problem in identifying the two types of adjustment costs and show ways to solve the problem

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

anticipated versus unanticipated terms of trade shocks and the j curve phenomenon abstract using a dynamic stochastic general equilibrium dsge model we examine the impact of anticipated and unanticipated terms of trade tot shocks on aggregate output inflation and the trade balance tb this allows us to offer an alternative explanation of the j curve phenomenon we find that an unanticipated tot shock increases real output as well as inflation but the j curve phenomenon may not exist under a certain condition however under the same condition an anticipated tot shock leads to the j curve effect we find that our main result concerning the j curve phenomenon continues to hold even if the assumption of rational expectations about the tot is relaxed further analysis reveals that the presence of a cost channel of monetary policy increases the intensity of the j curve effect assuming plausible parameter values while using a more general model calibration results support our theoretical predictions

adaptive learning and distributional dynamics in an incomplete markets model abstract recent research shows that several dsge models provide a closer fit to the data under adaptive learning this paper extends this research by introducing adaptive learning in the model of krusell and smith 1998 with uninsurable idiosyncratic risks and aggregate uncertainty a first contribution of this paper establishes that the equilibrium of this framework is stable under least squares learning the second contribution consists of showing that bounded rationality enhances the ability of this model to match the distribution of income in the us learning increases significantly the gini coefficients because of the opposite effects on consumption of the capital rich and of the capital poor agent the third contribution is an empirical exercise that shows that learning can account for increases in the income gini coefficient of up to 25 in a period of 28 years overall these findings suggest that adaptive learning has important distributional repercussions in this class of models

asset prices news shocks and the trade balance we analyze the relationship between asset prices and the trade balance estimating a bayesian var for a broad set of 38 industrialized and emerging market countries to derive model based identifying restrictions we model asset price shocks as news shocks about future productivity in a two country dynamic stochastic general equilibrium model such shocks are found to exert sizable effects on the trade balance moreover the effects are highly heterogeneous across countries for instance following a news shock that implies on impact a 10 increase in domestic equity prices relative to the rest of the world the u s trade balance will worsen by up to 1 0 percentage points but much less so for most other economies we find that this heterogeneity appears to be linked to the financial market depth and equity home bias of countries moreover the channels via wealth effects and via the real exchange rate are important for understanding the heterogeneity in the transmission

understanding expectation driven fluctuations a labor market approach this paper presents a uni ed analysis of neoclassical models that can generate expectation driven business cycles under anticipated future technology shocks or news shocks it shows that the ability or inability of various rbc models to generate positive comovement of aggregate variables hinges crucially on the structure of the labor market equilibrium the analysis provides a simple and intuitive guide to understanding the existing literature and to searching for new models that can explain the data under news shocks

consumption heterogeneity employment dynamics and macroeconomic co movement abstract real business cycle models rely on total factor productivity tfp shocks to explain the observed co movement among consumption investment and hours however an emerging body of evidence identifies investment shocks as important drivers of business cycles this paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and non employed can generate co movement in response non tfp shocks estimation reveals fluctuations in the marginal efficiency of investment that explain the bulk of business cycle variance in consumption investment and hours a corollary of the model s empirical success is the labor wedge that is not important at business cycle frequencies

the role of intratemporal adjustment costs in a multisector economy abstract in this paper we construct a multisector business cycle model which is capable of reproducing the procyclical behavior of cross sector measures of capital employment and output we start by documenting the difficulty that a standard variant of a conventional real business cycle model has in accounting for these facts we then show how the introduction of intratemporal adjustment costs for investment can significantly enhance the performance of such a model these costs make it difficult to alter the composition of production of new capital goods the presence of these costs eliminates many counterfactual observations of the model that would otherwise be present the dynamic response of variables in the model is different from what one would observe in the standard one sector model we also examine the implications of imposing intratemporal adjustment costs for labor the model can also account for the cross sector behavior of employment observed in the data

firm dynamics in news driven business cycles the role of endogenous survival rate evidences from the structural vector error correction model shows that the new business formation and stock prices co moves with output under news shocks however simply incorporating firm dynamics into jaimovich and rebelo s jaimovich and rebelo 2009 model cannot explain these empirical findings we show that this problem can be resolved by introducing endogenous survival rates for the new entrants

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

capital flows consumption booms and asset bubbles a behavioural alternative to the savings glut hypothesis bernanke 2005 hypothesized that a global savings glut was causing large trade imbalances however we show that the global savings rates did not show a robust upward trend during the relevant period moreover if there had been a global savings glut there should have been a large investment boom in the countries that imported capital instead those countries experienced consumption booms national asset bubbles explain the international imbalances the bubbles raised consumption resulting in large trade deficits in a sample of 18 oecd countries plus china movements in home prices alone explain half of the variation in trade deficits

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

technological learning and labor market dynamics the search and matching model of the labor market fails to match two important business cycle facts i a high volatility of unemployment relative to that of labor productivity and ii a mild correlation between these two variables we address these shortcomings by focusing on the implementation process of technological innovation that is the empirical nding that new technologies are subject to a learning process we consider a novel source of business cycles namely uctuations in the ease or speed of technological learning and show that a search and matching model featuring such shocks can account for both facts moreover our model provides a new interpretation of news shocks discussed in the recent business cycle literature

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

asset bubbles and the cost of economic fluctuations lucas 1987 2003 estimates that the cost of economic fluctuations is low a social planner would pay no more than 0 1 of permanent consumption to eliminate all future business cycle fluctuations the current paper extends lucas calculations by studying the costs of fluctuations arising from asset bubbles we estimate two classes of costs consumption volatility due to asset bubbles in a representative agent economy and consumption volatility that arises because households have heterogeneous exposure to the bubble assets we show that the magnitude of welfare costs is primarily driven by the existence of heterogeneity our benchmark calibration implies that the asset bubbles of the last decade generated a social welfare cost equal to a permanent 3 reduction in the level of national consumption if assets are held proportionately across the population these welfare costs fall by an order of magnitude our calculations are sensitive to the details of the calibration including the degree of balance sheet and trading heterogeneity the coefficient of relative risk aversion and the magnitude of the asset bubble our preferred specifications generate welfare costs ranging from 1 to 10 of permanent national consumption

investment adjustment costs an empirical assessment we evaluate empirical evidence for costs that penalize changes in investment using us industry data in aggregate models such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena so far no attempt has been made to estimate these costs directly at a disaggregated level we consider an industry model with investment adjustment costs and estimate its parameters using generalized methods of moments the ndings indicate small costs associated with changing the ow of investment at the industry level the weighted average of the industry elasticities with respect to the shadow price of capital which depends inversely on the adjustment cost parameter is more than seven times larger than the largest estimate based on aggregate data we examine potential sources which may account for the large industry aggregate dierence overall our results suggest

on the job learning and news driven business cycles this paper proposes a new channel of on the job learning to explain the positive comovement between consumption and employment following good news about future productivity the new recruits can generate an additional stream of output production in all future periods and the firm s labor demand is thus characterized by the forward looking property therefore the firm is motivated to hire more new recruits in advance in response to good news about future productivity once the increase in labor demand is greater than the decrease in labor supply caused by the income effect the coincident rise in consumption and employment can be driven by the news shock when such a channel is paired with investment adjustment costs and the endogenous capacity utilization rate this paper provides a plausible explanation for simultaneous booms in current consumption investment output and employment to match the empirical evidence under the news shock

real rigidities productivity improvements and investment dynamics abstract the theoretical literature on business cycles predicts a positive investment response to productivity improvements a prediction we question from theoretical and empirical perspectives we show that a short term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new keynesian dynamic stochastic general equilibrium dsge model in which firm specific capital introduces an additional real rigidity and monetary policy is not fully accommodative employing bayesian techniques we provide evidence that permanent productivity improvements have short term contractionary effects on investment although this result can be obtained from both firm specific and rental capital models only in the case of the former is the average price duration in line with the microeconometric evidence

the spirit of capitalism and expectation driven business cycles abstract while news shocks are believed to be instrumental in explaining business cycles many existing models fail to predict a boom in consumption investment employment output and asset prices in response to good news about future productivity a model with the intrinsic desire for wealth is shown to generate the aforementioned responses a news driven boom is explained predominantly by an expansion of labor supply and is characterized by the falling real wage the simulated model not only captures well conventional business cycle statistics but also reproduces countercyclical real returns and hump shaped responses of hours and output to an unexpected technology shock

the analytics of technology news shocks abstract this paper constructs several models in which unlike the standard neoclassical growth model positive news about future technology generates an increase in current consumption hours and investment these models are said to exhibit procyclical news shocks we find that all models that exhibit procyclical news shocks in our paper have two commonalities there are mechanisms to ensure that i consumption does not crowd out investment or vice versa ii the benefit of forgoing leisure in response to news shocks outweighs the cost among the models we consider we believe one model holds the greatest potential for explaining procyclical news shocks its critical assumption is that news of the future technology also illuminates the nature of this technology this illumination in turn permits economic actors to invest in capital that is forward compatible i e adapted to the new technology on the technical side our paper reintroduces the laplace transform as a tool for studying dynamic economies analytically using laplace transforms we are able to study and prove results about the full dynamics of the model in response to news shocks

does the imf perform a catalytic role the imf advertises itself as playing a catalytic role whereby its lending programmes induce other providers of finance to invest or lend as well the theoretical foundations of this claim are reviewed and found to be questionable the empirical evidence also appears to contradict the notion of a consistent and significant catalytic effect the policy implications of weak catalysis are reviewed and alternative approaches to delivering a suitable adjustment process investigated while some of these alternatives seem worthy of further evaluation including greater official coordination and the use of alternative private and official pools of capital many are politically or operationally untenable

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

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

optimal fiscal policy under learning abstract this paper characterizes optimal fiscal policy when agents learn about future taxation a benevolent and fully rational government chooses taxes on labor income and state contingent bonds to finance public spending considering that private agents form their expectations through a learning algorithm facing a trade off between distortionary taxes and distorted expectations the ramsey planner chooses the policy that minimizes the total cost of distortions the analysis produces two main results first the government will use fiscal variables to manipulate expectations reducing taxes and issuing debt at times of pessimism and doing the opposite at times of optimism this speeds up learning second the expectation dependent fiscal plan is also history dependent and it prescribes taxes that are not as smooth and more persistent than under rational expectations these findings are robust to alternative learning algorithms

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

equally shocking news abstract recently the idea that business cycles can be driven purely by anticipated developments in the economy so called news shocks has been usefully revived in this note news shocks are investigated in the context of monetary policy rules designed to mitigate their effects

heterogeneous beliefs and housing market boom bust cycles abstract this paper presents a business cycle model capturing the stylized features of housing market boom bust cycles in developed countries the model implies that over optimism of mortgage borrowers generates housing market boom bust cycles if mortgage borrowers are credit constrained and savers do not share their optimism this result holds without price stickiness if price stickiness is introduced into the model then the model replicates a low policy interest rate during a housing boom as an endogenous reaction to a low inflation rate given a taylor rule thus monetary easing observed during housing booms are consistent with the presence of over optimism causing boom bust cycles

no news in business cycles this paper uses a structural large dimensional factor model to evaluate the role of news shocks shocks with a delayed eect on productivity in generating the business cycle

news about aggregate demand and the business cycle abstract the plausibility of expectations driven cyclical fluctuations in an otherwise standard one sector real business cycle model with variable capital utilization and mild increasing returns to scale in production is examined due to a dominating wealth effect our model is able to generate qualitatively as well as quantitatively realistic aggregate fluctuations driven by news impulses to future consumption demand or government spending on goods and services when the economy is subject to anticipated total factor productivity or investment specific technology shocks the relative strength of the intertemporal substitution effect needs to be enhanced for our model to exhibit positive macroeconomic co movement and business cycle statistics that are consistent with the data

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

fiscal sentiment and the weak recovery from the great recession a quantitative exploration the us economy has not recovered from the great recession as strongly as predicted by the neoclassical growth model even after incorporating a variety of frictions to it the paper explores quantitatively the hypothesis that the counterfactual predictions are mostly the result of ignoring the expectations of higher taxes prompted by unprecedented fiscal challenges faced by that country in peacetime the main finding is that this fiscal sentiment hypothesis can account for a substantial fraction of the decline in investment and labor input in the aftermath of the great recession provided the perceived higher taxes fall almost exclusively on capital income

news and financial intermediation in aggregate fluctuations 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

news and business cycles in open economies we study the effects of news about future total factor productivity tfp in a small open economy we show that an open economy version of the neoclassical model produces a recession in response to good news about future tfp we propose an open economy model that generates comovement in response to tfp news the key elements of our model are a weak short run wealth effect on the labor supply and adjustment costs to labor and investment we show that our model also generates comovement in response to news about future investment specific technical change and to sudden stops

monetary policy shocks we got news abstract we assess the role of monetary policy news shocks in the context of a medium scale dsge model estimated on us data we estimate several versions of the model and find decisive evidence in favour of the inclusion of monetary policy news shocks over a two quarter horizon according to our results monetary policy news shocks account for a non negligible fraction of the variance of real variables especially at shorter forecast horizons further we document that the importance of monetary policy news shocks goes beyond what was observed in recent years the historical importance of monetary policy news shocks dates back to the 1999 2006 period when the official fomc statements provided information about both the current policy setting and the expected future policy path we also show that adding monetary policy news shocks to the model does not lead to identification problems

chronicle of a war foretold the macroeconomic effects of anticipated defence spending shocks we identify us defense news shocks as shocks that best explain future movements in defense spending over a ve year horizon and are orthogonal to current defense spending our identied shocks are strongly correlated with the ramey 2011 news shocks but explain a larger share of macroeconomic uctuations and have signicant demand eects fiscal news induces signicant and persistent increases in output consumption investment hours and the interest rate standard dsge models fail to produce such a pattern we propose a sticky price model with distortionary taxation variable capital utilization capital adjustment costs and rule of thumb consumers that replicates the empirical ndings

technological learning and labor market dynamics learning and labor market dynamics the search and matching model of the labor market fails to match two important business cycle facts i a high volatility of unemployment relative to labor productivity and ii a mild correlation between these two variables we address these shortcomings by focusing on technological learning by doing the notion that it takes workers time using a technology before reaching their full productive potential with it we consider a novel source of business cycles namely fluctuations in the speed of technological learning and show that a search and matching model featuring such shocks can account for both facts moreover our model provides a new interpretation of recently discussed news shocks

optimal monetary policy with uncertain fundamentals and dispersed information this paper studies optimal monetary policy in a model where aggregate fluctuations are driven by the private sector s uncertainty about the economy s fundamentals information on aggregate productivity is dispersed across agents and there are two aggregate shocks a standard productivity shock and a noise shock affecting public beliefs about aggregate productivity neither the central bank nor individual agents can distinguish the two shocks when they are realized despite the lack of superior information monetary policy can affect the economy s relative response to the two shocks as time passes better information on past fundamentals becomes available the central bank can then adopt a backward looking policy rule based on more precise information about past shocks by announcing its response to future information the central bank can influence the expected real interest rate faced by forward looking consumers with different beliefs and thus affect the equilibrium allocation if the announced future response is sufficiently aggressive the central bank can completely eliminate the effect of noise shocks however this policy is typically suboptimal as it leads to an excessively compressed distribution of relative prices the optimal monetary policy balances the benefits of aggregate stabilization with the costs in terms of cross sectional efficiency copyright wiley blackwell