TY  - JOUR
AU  - Barsky, Robert B
AU  - Basu, Susanto
AU  - Lee, Keyoung
TI  - Whither News Shocks?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 20666
PY  - 2014
Y2  - November 2014
DO  - 10.3386/w20666
UR  - http://www.nber.org/papers/w20666
L1  - http://www.nber.org/papers/w20666.pdf
N1  - Author contact info:
Robert B. Barsky
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, Illinois 60604-1413
Tel: (312) 322-5315
E-Mail: barsky@frbchi.org

Susanto Basu
Department of Economics
Boston College
140 Commonwealth Avenue
Chestnut Hill, MA 02467
Tel: 617/552-2182
Fax: 617/552-2308
E-Mail: susanto.basu@bc.edu

Keyoung Lee
Ten Independence Mall
UCLA
Los Angeles, CA 90095
Philadelphia, PA 19106
E-Mail: Keyoung.Lee@phil.frb.org
M1  - published as Robert B. Barsky, Susanto Basu, Keyoung Lee. "Whither News Shocks?," in Jonathan A. Parker and Michael Woodford, editors, "NBER Macroeconomics Annual 2014, Volume 29" University of Chicago Press (2015)

M3  - presented at "29th Annual Conference on Macroeconomics", April 11-12, 2014
AB  - Does news about future productivity cause business-cycle fluctuations?  What other effects might it have? We explore the answer to this question using semi-structural VARs, where “news” is defined as the innovation in the expectation of TFP at a fixed horizon in the future.  We find that systems incorporating a number of forward-looking variables, including stock prices, consumption, consumer confidence and inflation, robustly predict three outcomes.  First, following a news shock, TFP rises for several years.  Second, inflation falls immediately and substantially, and stays low, often for 10 quarters or more.  Third, there is a sharp increase  in a forward-looking measure of consumer confidence.   Consumption typically rises following good news, but investment, consumer durables purchases and hours worked typically fall on impact.  All the quantity variables subsequently rise, as does TFP.  Depending on the specification of the reduced form VAR, the activity variables may lead TFP to some extent – possibly lending some support to the hypothesis of news-driven business cycles – or they may move in lockstep with productivity.   For the most part, the quantity and inflation responses are quite consistent with the predictions of a standard New Keynesian model augmented with real wage inertia.
ER  -