We implement a new approach for the identification of “news shocks” about future technology. In a VAR featuring a measure of aggregate technology and several forward-looking variables, we identify the news shock as the shock orthogonal to technology innovations that best explains future variation

This paper investigates the reliability of SVARs to identify the dynamic effects of news shocks. We show analytically that the dynamics implied by SVARs, using both long–run and short–run restrictions, are biased. However, the bias vanishes as long as news shocks account for most of the variability

This paper assesses SVARs as relevant tools at identifying the aggregate effects of news shocks. When the econometrician and private agents ’ information sets are not aligned, the dynamic re-sponses identified from SVARs are biased. However, the bias vanishes when news shocks account for the bulk

This paper presents further evidence on the hypothesis of news driven business cycles. I use a structural VECM approach to identify news shocks as in Beaudry and Lucke (2010). I document three facts: First, news shocks identified by BL are Granger-causal for US patent data. Second, BL’s analysis

much of Total Factor Productivity changes in the long run. We therefore label such a shock a news about Total Factor Productivity of the large country. This shock is shown to act as a demand shock in the data, creating a boom in the large country as well as in the small one. Second, we propose a two

Abstract: This paper analyzes the impacts of news shocks on macroeconomic volatility. Whereas anticipation amplifies volatility in any purely forward-looking model, such as the baseline New Keynesian model, the results are ambiguous when including a backward-looking component. In addition

In this paper, I explore the dynamic effects of aggregate news about future technology improvements on sectoral fundamentals. I document that the durable goods sector responds significantly more to news shocks than the nondurable goods sector. By looking at the behavior of various sectoral

The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors.

Shapiro, and seminar participants at the University of Michigan for helpful comments and discussions. We thank John Fernald for providing us with his TFP data. All remaining errors are our own. Barsky acknowledges support from the Russell Sage Foundation as a visiting scholar, and Sims acknowledges the support of theHorace H. Rackham School of Graduate Studies at the University of Michigan.¸ The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

This paper constructs model economies that are capable of producing positive comovement in consumption, labor hours, and investment, in response to positive news shocks about future technology. In contrast, the standard neo-classical model cannot. We prove that a single departure from the neo