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Barcelona GSE Working Papers Series
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Barcelona GSE Working Paper No. 535 | | Title: | No News in Business Cycles | | Authors: | Mario Forni, Luca Gambetti, and Luca Sala | | Date: | 21-02-2011 | | Keywords: | structural factor model, news shocks, invertibility, fundamentalness | | JEL Codes: | C32, E32, E62 | | Abstract: | | This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology. | | Download this working paper in PDF format (1.27 Mb) |  List of all recent working papers |
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