Can News About the Future Drive the Business Cycle? / Nir Jaimovich, Sergio Rebelo.

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Jaimovich, Nir

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w12537.Publication details: Cambridge, Mass. National Bureau of Economic Research 2006.Description: 1 online resource: illustrations (black and white)Subject(s):

E24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity
E32 - Business Fluctuations • Cycles

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

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w12537 (Browse shelf(Opens below))	Not For Loan

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September 2006.

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