How much can news shocks account for aggregate fluctuations?
View/ Open
Zhang2010.doc (1.870Mb)
Date
06/10/2010Author
Zhang, Ruomei
Metadata
Abstract
Recent studies have highlighted the importance of news shocks in the literature on
business cycles, that is, a-priori information that agents receive about future
developments in the economy. To examine whether the news shocks can be a major
source of aggregate fluctuations, in the first chapter I quantify the relative importance of
the news shocks to total factor productivity (TFP) and surprised technology changes by
employing two methods. The first method is the Beaudry and Portier’s identification
schemes (2006) and the second method is a two-step approach I develop in this study.
Empirical results on the US quarterly data show that the news shocks play an important
role in generating the business cycles, while the surprised technology changes is not a
potential source of macro-economic fluctuations. In addition, the two-step approach
seems to be able to solve the identification problem raised in the high dimensional
systems in SVAR analysis. In the second chapter, I extend the empirical study of the
news shocks to the European countries to test for the generality of the issues about the
news shocks raised in the US literature. The empirical results are supportive for the
hypothesis of news driven business cycles.