Görtz, Christoph and Tsoukalas, John (2011): News and Financial Intermediation in Aggregate Fluctuations.
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We develop a two-sector DSGE model with financial intermediation to investigate the role of news as a driving force of the business cycle. We find that news about future capital quality is a significant source of aggregate fluctuations, accounting for around 37% in output variation in cyclical frequencies. Financial intermediation is essential for the importance and propagation of capital quality shocks. In addition, news shocks in capital quality generate aggregate and sectoral comovement as in the data and is consistent with procyclical movements in the value of capital. From a historical perspective, news shocks to capital quality are to a large extent responsible for the recession following the 1990s investment boom and the latest recession following the financial crisis, but played a much smaller role during the recession at the beginning of the 1990s. This is in line with the belief that revisions of overoptimistic expectations contributed to the last two recessions while movements in fundamentals played a much bigger role for the recession at the beginning of the 1990s.
|Item Type:||MPRA Paper|
|Original Title:||News and Financial Intermediation in Aggregate Fluctuations|
|English Title:||News and Financial Intermediation in Aggregate Fluctuations|
|Keywords:||News; Anticipation effects; Business cycles; DSGE; Bayesian estimation|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Christoph Görtz|
|Date Deposited:||14. Oct 2011 14:17|
|Last Modified:||12. Feb 2013 04:17|
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