Luca Gambetti gratefully acknowledges the financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-32392 and the Barcelona GSE Research Network.
No News in Business Cycles
Article first published online: 26 MAR 2014
© 2013 Royal Economic Society
The Economic Journal
Volume 124, Issue 581, pages 1168–1191, December 2014
How to Cite
Forni, M., Gambetti, L. and Sala, L. (2014), No News in Business Cycles. The Economic Journal, 124: 1168–1191. doi: 10.1111/ecoj.12111
- Issue published online: 9 DEC 2014
- Article first published online: 26 MAR 2014
- Accepted manuscript online: 18 NOV 2013 11:26AM EST
- Manuscript Accepted: 31 AUG 2013
- Manuscript Received: 26 JUN 2012
- Spanish Ministry of Economy and Competitiveness. Grant Number: ECO2009-09847
- Barcelona GSE Research Network
A structural factor-augmented VAR model is used to evaluate the role of ‘news shocks’ in generating the business cycle. We find that existing small-scale VAR models are affected by ‘non-fundamentalness’ and therefore fail to recover the correct shock and impulse response functions; news shocks have a smaller role in explaining the business cycle than previously found in the literature; their effects are essentially in line with what predicted by standard theories and a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology.