We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced-form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment, and account for a sizable fraction of their prediction error variance at business cycle horizons.

Noisy News in Business Cycles / Forni, Mario; Gambetti, Luca; Lippi, Marco; Sala, Luca. - In: AMERICAN ECONOMIC JOURNAL, MACROECONOMICS. - ISSN 1945-7715. - 9:4(2017), pp. 122-152. [10.1257/mac.20150359]

Noisy News in Business Cycles

FORNI, Mario;GAMBETTI, Luca;LIPPI, Marco;
2017

Abstract

We investigate the role of "noise" shocks as a source of business cycle fluctuations. To do so we set up a simple model of imperfect information and derive restrictions for identifying the noise shock in a VAR model. The novelty of our approach is that identification is reached by means of dynamic rotations of the reduced-form residuals. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment, and account for a sizable fraction of their prediction error variance at business cycle horizons.
2017
9
4
122
152
Noisy News in Business Cycles / Forni, Mario; Gambetti, Luca; Lippi, Marco; Sala, Luca. - In: AMERICAN ECONOMIC JOURNAL, MACROECONOMICS. - ISSN 1945-7715. - 9:4(2017), pp. 122-152. [10.1257/mac.20150359]
Forni, Mario; Gambetti, Luca; Lippi, Marco; Sala, Luca
File in questo prodotto:
File Dimensione Formato  
mac.20150359.pdf

Open access

Tipologia: Versione pubblicata dall'editore
Dimensione 1.01 MB
Formato Adobe PDF
1.01 MB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1145996
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 31
  • ???jsp.display-item.citation.isi??? 28
social impact