Abstract
News shocks are shocks that are useful for predicting future fundamentals but do not affect current fundamentals. While the idea of “news shocks” as a driver of economic fluctuations has been present since the early work on business cycles it had been formalized and assessed in the last decade. This entry discusses both the theoretical impact of news shocks on the economy and their empirical relevance for business cycles.
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Notes
- 1.
For simplicity, without loss of generality, we assume no discounting, and a gross interest that equals one.
- 2.
That is, U is a strictly concave function.
- 3.
Without loss of generality we assume that the consumer begins the period with no assets.
- 4.
Note that since the consumer lives for only two periods, she has no incentives to save in the last period, t + 1.
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Jaimovich, N. (2018). News Shocks. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_3057
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DOI: https://doi.org/10.1057/978-1-349-95189-5_3057
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