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Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach


  • We thank the editor, two anonymous referees, Toni Braun, Larry Christiano, Mario Crucini, Eric Leeper, Kevin Huang, Masaru Inaba, Takushi Kurozumi, Giorgio Primiceri, Frank Smets, and the seminar and conference participants at Tohoku University, Vanderbilt University and the FRB Philadelphia/NBER Workshop on Methods and Applications for DSGE Models, the 2009 Far East and South Asia Meetings of the Econometric Society, and the 10th CIRJE-TCER Macroeconomics Conference for helpful comments and discussion. We also thank Tomohiro Sugo and Kozo Ueda for providing us with the Japanese data. Views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan.


We examine whether the news shocks, as explored in Beaudry and Portier (2004), can be a major source of aggregate fluctuations. For this purpose, we extend a standard dynamic stochastic general equilibrium model of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003, 2007) by allowing news shocks on the total factor productivity (TFP), and estimate the model using Bayesian methods. Estimation results on the U.S. and Japanese economies suggest that (i) news shocks play a relatively more important role in the United States than in Japan, (ii) a news shock with a longer forecast horizon has larger effects on nominal variables, and (iii) the overall effect of the TFP on hours worked becomes ambiguous in the presence of news shocks.

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