American Economic Review Vol. 108 No. 7 2018

News or Noise? The Missing Link

Ryan Chahrour¹; Kyle Jurado²

¹ Department of Economics, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467 (email: ) · ² Department of Economics, Duke University, 419 Chapel Drive, Durham, NC 27708 (email: )

Abstract

The literature on belief-driven business cycles treats news and noise as distinct representations of agents' beliefs. We prove they are empirically the same. Our result lets us isolate the importance of purely belief-driven fluctuations. Using three prominent estimated models, we show that existing research understates the importance of pure beliefs. We also explain how differences in both economic environment and information structure affect the estimated importance of pure beliefs.

DOI

10.1257/aer.20170792

Volume

108

Issue

7

Pages

1702-1736

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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