Abstract
An important disconnect in the news view of fluctuations is the lack of consistent evidence suggestive of significant macroeconomic effects of news shocks. Findings from estimated DSGE models that, in theory, allow news shocks to matter quantitatively, suggest they do not. This disconnect can be resolved once we augment a DSGE model with a financial channel that provides amplification to news shocks. Our results suggest news shocks to the future growth prospects of the economy to be significant drivers of U.S. fluctuations, explaining as much as 50% and 37% of the variance in hours worked and output respectively, in cyclical frequencies.
| Original language | English |
|---|---|
| Pages (from-to) | 514-530 |
| Number of pages | 17 |
| Journal | The Review of Economics and Statistics |
| Volume | 99 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 17 Jul 2017 |
