Can News About the Future Drive the Business Cycle

By Nir Jaimovich, Sergio Rebelo. 2009

1,042 citations recorded by the source corpus.

We propose a model that generates an economic expansion in response to good news about future total factor productivity (TFP) or investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that exhibit a weak short-run wealth effect on the labour supply. These preferences nest the two classes of utility functions most widely used in the business cycle literature as special cases. Our model can generate recessions that resemble those of the post-war U.S. economy without relying on negative productivity shocks. The recessions are caused not by contemporaneous negative shocks but rather by lackluster news about future TFP or investment-specific technical change.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ab9417daa1824aa463b322cbc92bc53236ea6c92

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Citations in the corpus

Optimal Monetary Policy with Uncertain Fundamentals and Dispersed Information (2009, methodology): “To derive (20) notice that, as just argued, the last line of (61) is equal to −κd.”
News, Noise, and Fluctuations: An Empirical Exploration (2013, neutral): “These papers follow the approach of Jaimovich and Rebelo (2006), modeling news as advanced, perfect information about shocks affecting future productivity.”
Long-Run Productivity Risk: A New Hope for Production-Based Asset Pricing? (2014, neutral): “My work differs from Jaimovich and Rebelo (2009) in several respects.”
Empirical evidence on the aggregate effects of anticipated and unanticipated US tax policy shocks (2012, result): “Secondly, our results may also have some relevance for the recent interest into the “news” view of business cycles, see e.g. Beaudry and Portier (2004, 2006), Cochrane (1994), Danthine, Donaldson and Johnsen (1998), den Haan and Kaltenbrunner (2009), or Jaimovich and Rebelo (2009).”
Leaning Against Boom-Bust Cycles in Credit and Housing Prices (2013, background): “Since Beautry and Portier (2004, 2007) and Jaimovich and Rebelo (2009), several contributions have highlighted the importance of expectations-driven cycles as a source of business cycle fluctuations.”
Chronicle of a war foretold : the macroeconomic effects of anticipated defense spending shocks (2014, methodology): “Figure 16: Theoretical Model: Quantification of the Propagation Mechanisms Induced by Sticky Prices, Jaimovich and Rebelo (2009) Preferences, and Rule of Thumb Consumers.”
Fiscal Policy in an Unemployment Crisis (2016, background): “Beaudry and Portier (2004) inspired a renewed interest in the topic (e.g. Jaimovich and Rebelo (2009); Den Haan and Kaltenbrunner (2009)); recent empirical studies lend support to this view of macroeconomic fluctuations (e.g. Beaudry and Portier (2006); Barsky and Sims (2012)). flexible price, real…”
Fiscal Foresight and Information Flows (2012, background): “Specification (22) embeds many of the information flows that appear in theoretical studies of foresight, including Christiano, Ilut, Motto, and Rostagno (2008), Jaimovich and Rebelo (2009), and Fujiwara, Hirose, and Shintani (2011) in the context of technology news; Ramey (2007) for government spend”