Abstract

http://ssrn.com/abstract=1412047
 
 

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News, Noise, and Fluctuations: An Empirical Exploration


Olivier J. Blanchard


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Jean-Paul L'Huillier


Massachusetts Institute of Technology (MIT)

Guido Lorenzoni


Northwestern University; National Bureau of Economic Research (NBER)

May 2009

NBER Working Paper No. w15015

Abstract:     
We explore empirically models of aggregate fluctuations with two basic ingredients: agents form anticipations about the future based on noisy sources of information; these anticipations affect spending and output in the short run. Our objective is to separate fluctuations due to actual changes in fundamentals (news) from those due to temporary errors in the private sector's estimates of these fundamentals (noise). Using a simple model where the consumption random walk hypothesis holds exactly, we address some basic methodological issues and take a first pass at the data. First, we show that if the econometrician has no informational advantage over the agents in the model, structural VARs cannot be used to identify news and noise shocks. Next, we develop a structural Maximum Likelihood approach which allows us to identify the model's parameters and to evaluate the role of news and noise shocks. Applied to postwar U.S. data, this approach suggests that noise shocks play an important role in short-run fluctuations.

Number of Pages in PDF File: 41

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Date posted: June 1, 2009  

Suggested Citation

Blanchard, Olivier J. and L'Huillier, Jean-Paul and Lorenzoni, Guido, News, Noise, and Fluctuations: An Empirical Exploration (May 2009). NBER Working Paper No. w15015. Available at SSRN: http://ssrn.com/abstract=1412047

Contact Information

Olivier J. Blanchard (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
Room E52-357
50 Memorial Drive
Cambridge, MA 02142
United States
617-253-8891 (Phone)
617-253-4096 (Fax)
HOME PAGE: http://mit.edu/blanchar/www/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
202 623 7825 (Phone)
202 623 7271 (Fax)
Jean-Paul L'Huillier
Massachusetts Institute of Technology (MIT) ( email )
77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States
Guido Lorenzoni
Northwestern University ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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