What's News in Business Cycles

Authors

  • Stephanie Schmitt-Grohé,

    1. Dept. of Economics, Columbia University, New York, NY 10027, U.S.A., CEPR, and NBER; stephanie.schmittgrohe@columbia.edu
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  • Martín Uribe

    1. Dept. of Economics, Columbia University, New York, NY 10027, U.S.A. and NBER; martin.uribe@columbia.edu
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    • We thank for comments Juan Rubio-Ramirez, Harald Uhlig, three anonymous referees, and seminar participants at Princeton University, Duke University, the 2008 University of Texas at Dallas Conference on Methods and Topics in Economic and Financial Dynamics, the 39th Konstanz Seminar on Monetary Theory and Policy, the University of Bonn, the 2008 NBER Summer Institute, Columbia University, Cornell University, the University of Chicago, the University of Maryland, UC Riverside, the University of Chile, CUNY, University of Lausanne and EFPL, the 2009 SED meetings, the Federal Reserve Banks of New York, Philadelphia, and Kansas City, Ente Einaudi, and the Third Madrid International Conference in Macroeconomics. Javier García-Cicco, Wataru Miyamoto, and Sarah Zubairy provided excellent research assistance.


Abstract

In the context of a dynamic, stochastic, general equilibrium model, we perform classical maximum likelihood and Bayesian estimations of the contribution of anticipated shocks to business cycles in the postwar United States. Our identification approach relies on the fact that forward-looking agents react to anticipated changes in exogenous fundamentals before such changes materialize. It further allows us to distinguish changes in fundamentals by their anticipation horizon. We find that anticipated shocks account for about half of predicted aggregate fluctuations in output, consumption, investment, and employment.

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