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Investment-Specific News Dominates TFP News in Driving U.S. Business Cycles

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Abstract

When both Investment-Specific Technology (IST) news and Total Factor Productivity (TFP) news shocks compete, the former substantially dominate the latter in driving post-WWII US business cycles. At the two-year horizon, IST news shocks account for 58 percent of the forecast error variance in output, 56 percent of the variation in hours, 51 percent of investment, and 65 percent of consumption variation. By contrast, TFP news shocks account for less than 10 percent of the variation in output, hours, investment, and consumption. TFP news also fails to produce comovement and statistically significant effects on macroeconomic variables despite using the most recent vintage of TFP data from Fernald (2014). Our findings suggest shifting focus from TFP to IST news when studying news-driven business cycles.

Suggested Citation

  • Nadav Ben Zeev & Hashmat Khan, 2016. "Investment-Specific News Dominates TFP News in Driving U.S. Business Cycles," Carleton Economic Papers 16-08, Carleton University, Department of Economics, revised 12 Oct 2016.
    • Handle: RePEc:car:carecp:16-08
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    References listed on IDEAS

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    1. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 665-696.
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    4. Nadav Ben Zeev & Hashmat Khan, 2015. "Investment‐Specific News Shocks and U.S. Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(7), pages 1443-1464, October.
    5. Eric R. Sims, 2016. "Differences in Quarterly Utilization-Adjusted TFP by Vintage, with an Application to News Shocks," NBER Working Papers 22154, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Investment-specific news; TFP news; Shocks; News-driven business cycles;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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