News and Business Cycles in Open Economies

36 Pages Posted: 28 Sep 2007 Last revised: 27 Sep 2010

See all articles by Nir Jaimovich

Nir Jaimovich

University of Zurich

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: September 2007

Abstract

Aggregate and sectoral comovement are central features of business cycle data. Therefore, the ability to generate comovement is a natural litmus test for macroeconomic models. But it is a test that most existing models fail. In this paper we propose a unified model that generates both aggregate and sectoral comovement in response to contemporaneous shocks and news shocks about fundamentals. The fundamentals that we consider are aggregate and sectoral TFP shocks as well as investment-specific technical change. The model has three key elements: variable capital utilization, adjustment costs to investment, and a new form of preferences that allow us to parameterize the strength of short-run wealth effects on the labor supply.

Suggested Citation

Jaimovich, Nir and Tavares Rebelo, Sergio, News and Business Cycles in Open Economies (September 2007). NBER Working Paper No. w13444. Available at SSRN: https://ssrn.com/abstract=1017767

Nir Jaimovich

University of Zurich ( email )

Sergio Tavares Rebelo (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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National Bureau of Economic Research (NBER)

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