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News or Noise? The Missing Link

Author

Listed:
  • Kyle Jurado

    (Duke University)

  • Ryan Chahrour

    (Boston College)

Abstract

The literature on belief-driven business cycles treats news and noise as distinct representations of people’s beliefs. We prove they are empirically the same. Our result lets us isolate the importance of beliefs as an independent source of fluctuations. Using three prominent estimated models, we show that existing research understates this importance. Our result implies that structural vector autoregression analysis can be applied to models with either news or noise. We demonstrate this in U.S. data, and find that productivity accounts for 14% of consumption fluctuations, of which only a small portion is due to future shocks; the rest is noise.

Suggested Citation

  • Kyle Jurado & Ryan Chahrour, 2017. "News or Noise? The Missing Link," 2017 Meeting Papers 320, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:320
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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