American Economic Review Vol. 99 No. 4 2009

Can News about the Future Drive the Business Cycle?

Nir Jaimovich¹; Sergio Rebelo²

¹ Department of Economics, Stanford University, Stanford, CA, 94305-6072. · ² Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208.

Abstract

Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.

DOI

10.1257/aer.99.4.1097

Volume

99

Issue

4

Pages

1097-1118

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓