Stock Prices, News and Economic Fluctuations

59 Pages Posted: 18 Jun 2004 Last revised: 29 Oct 2022

See all articles by Paul Beaudry

Paul Beaudry

University of British Columbia (UBC) - Vancouver School of Economics; National Bureau of Economic Research (NBER)

Franck Portier

University of Toulouse I - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); Centre for Economic Policy Research (CEPR)

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Date Written: June 2004

Abstract

In this paper we show that the joint behavior of stock prices and TFP favors a view of business cycles driven largely by a shock that does not affect productivity in the short run -- and therefore does not look like a standard technology shock -- but affects productivity with substantial delay -- and therefore does not look like a monetary shock. One structural interpretation we suggest for this shock is that it represents news about future technological opportunities which is first captured in stock prices. We show that this shock causes a boom in consumption, investment and hours worked that precede productivity growth by a few years. Moreover, we show that this shock explains about 50\% of business cycle fluctuations.

Suggested Citation

Beaudry, Paul and Portier, Franck, Stock Prices, News and Economic Fluctuations (June 2004). NBER Working Paper No. w10548, Available at SSRN: https://ssrn.com/abstract=556535

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Franck Portier

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