American Economic Review Vol. 103 No. 7 2013

News, Noise, and Fluctuations: An Empirical Exploration

Olivier Blanchard¹; Jean-Paul L’Huillier²; Guido Lorenzoni³

¹ International Monetary Fund, 700 19th Street, NW, Washington, DC 20431. · ² Einaudi Institute for Economics and Finance, Via Sallustiana, 62, 00187 Rome, Italy. · ³ Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208.

Abstract

We explore empirically models of aggregate fluctuations in which consumers form anticipations about the future based on noisy sources of information and these anticipations affect output in the short run. Our objective is to separate fluctuations due to changes in fundamentals (news) from those due to temporary errors in agents' estimates (noise). We show that structural VARs cannot be used to identify news and noise shocks, but identification is possible via a method of moments or maximum likelihood. Next, we estimate our model on US data. Our results suggest that noise shocks explain a sizable fraction of short-run consumption fluctuations.

DOI

10.1257/aer.103.7.3045

Volume

103

Issue

7

Pages

3045-3070

Language

en

Sources

bibtex:phds-export.bib crossref openalex

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 ✓