TY - JOUR
T1 - Can news about the future drive the business cycle?
AU - Jaimovich, Nir
AU - Rebelo, Sergio
PY - 2009/9
Y1 - 2009/9
N2 - Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investmentspecific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply. (JEL E13, E20, E32).
AB - Aggregate and sectoral comovement are central features of business cycles, so the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most models fail. We propose a unified model that generates aggregate and sectoral comovement in response to contemporaneous and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral total factor productivity shocks as well as investmentspecific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply. (JEL E13, E20, E32).
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U2 - 10.1257/aer.99.4.1097
DO - 10.1257/aer.99.4.1097
M3 - Article
AN - SCOPUS:74949122801
SN - 0002-8282
VL - 99
SP - 1097
EP - 1118
JO - American Economic Review
JF - American Economic Review
IS - 4
ER -