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No News in Business Cycles

descriptionPublicationkeyboard_double_arrow_right Article , Research , Other literature type , Preprint 01 Jan 2012 Italy, Spain English Publisher:Oxford University Press (OUP)Journal:The Economic Journal, volume 124, pages 1,168-1,191 (issn: 0013-0133,

Authors: Luca Sala; Mario Forni; Mario Forni; Luca Gambetti;

doi: 10.1111/ecoj.12111 , 10.2139/ssrn.2160736

handle: 10261/35528 , 11380/1062233 , 11565/3856909 , 2072/152037 , 2318/1658666

No News in Business Cycles

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Abstract

This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology

The nancial support from the Spanish Ministry of Science and Innovation through grant ECO2009- 09847 and the Barcelona Graduate School Research Network is gratefully acknowledged.

JEL classification: C32, E32, E62

Peer reviewed

Countries

Italy, Spain

Related Organizations

Autonomous University of Barcelona
Spain
University of Turin
Italy
Università Luigi Bocconi
Italy
University of Modena and Reggio Emilia
Italy
Economic Policy Institute
United States

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Keywords

Economics and Econometrics, Invertibility, fundamentalness; invertibility; news shocks; structural factor model, Structural factor model, News shocks, Structural factor model, news shocks, invertibility, fundamentalness, structural factor model, news shocks, invertibility, fundamentalness., Cicles econòmics, structural factor model; news shocks; invertibility; fundamentalness, Fundamentalness, FACTOR AUGMENTED VAR, NEWS SHOCKS, INVERTIBILITY, FUNDAMENTALNESS, jel: jel:E62, jel: jel:E32, jel: jel:C32

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	citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).	75
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