Abstract
A news-driven business cycle is a positive comovement in consumption, labor, investment, and output caused by positive news about the future. Standard real business cycle models do not generate it. In this paper, we find that a used market friction - i.e., sticky prices - can be a source of news-driven business cycles from news about future technology growth, technology level, and expansionary monetary policy shocks. The key mechanism is the countercyclical movements of markups through nominal rigidities.
| Original language | English |
|---|---|
| Article number | 24 |
| Journal | B.E. Journal of Macroeconomics |
| Volume | 10 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2010 |
| Externally published | Yes |
Keywords
- news-driven business cycles
- nominal rigidities
- sticky prices
ASJC Scopus subject areas
- Economics and Econometrics
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