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What's News in Business Cycles

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Author Info
Stephanie Schmitt-Grohe
Martin Uribe

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Abstract

In this paper, we perform a structural Bayesian estimation of the contribution of anticipated shocks to business cycles in the postwar United States. Our theoretical framework is a real-business-cycle model augmented with four real rigidities: investment adjustment costs, variable capacity utilization, habit formation in consumption, and habit formation in leisure. Business cycles are assumed to be driven by permanent and stationary neutral productivity shocks, permanent investment-specific shocks, and government spending shocks. Each of these shocks is buffeted by four types of structural innovations: unanticipated innovations and innovations anticipated one, two, and three quarters in advance. We find that anticipated shocks account for more than two thirds of predicted aggregate fluctuations. This result is robust to estimating a variant of the model featuring a parametric wealth elasticity of labor supply.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14215.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14215

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alejandro Justiniano & Giorgio E. Primiceri & Andrea Tambalotti, 2008. "Investment shocks and business cycles," Working Paper Series WP-08-12, Federal Reserve Bank of Chicago. [Downloadable!]
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  2. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  3. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," IDEI Working Papers 158, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  4. Ippei Fujiwara & Yasuo Hirose & Mototsugu Shintani, 2008. "Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach," Levine's Bibliography 122247000000002352, UCLA Department of Economics. [Downloadable!]
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  5. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  6. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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  7. Martin Lettau & Harald Uhlig, 2000. "Can Habit Formation be Reconciled with Business Cycle Facts?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 79-99, January. [Downloadable!] (restricted)
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  8. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nutahara, Kengo, 2009. "Internal and external habits and news-driven business cycles," MPRA Paper 12550, University Library of Munich, Germany. [Downloadable!]
  2. Hans-Werner Wohltmann & Roland Winkler, 2009. "On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model," Kiel Working Papers 1497, Kiel Institute for the World Economy. [Downloadable!]
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  3. Hammad Qureshi, 2009. "News Shocks and Learning-by-doing," Working Papers 09-06, Ohio State University, Department of Economics. [Downloadable!]
  4. Hans-Werner Wohltmann & Roland Winkler, 2009. "Rational Expectations Models with Anticipated Shocks and Optimal Policy: A General Solution Method and a New Keynesian Example," Kiel Working Papers 1507, Kiel Institute for the World Economy. [Downloadable!]
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