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News or Noise? The Missing Link

58 Pages Posted: 12 Sep 2016 Last revised: 4 Nov 2017

Ryan Chahrour

Boston College - Department of Economics

Kyle Jurado

Duke University - Department of Economics

Date Written: November 2, 2017

Abstract

The literature on belief-driven business cycles treats news and noise as distinct representations of agents' beliefs. We prove they are empirically the same. Our result lets us isolate the importance of purely belief-driven fluctuations. Using three prominent estimated models, we show that existing research understates the importance of pure beliefs. We also explain how differences in both economic environment and information structure affect the estimated importance of pure beliefs.

Keywords: News, noise, business cycles

JEL Classification: D84, E32, C31

Suggested Citation

Chahrour, Ryan and Jurado, Kyle, News or Noise? The Missing Link (November 2, 2017). Economic Research Initiatives at Duke (ERID) Working Paper No. 228. Available at SSRN: https://ssrn.com/abstract=2837258

Ryan Chahrour

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www.chahrour.net

Kyle Jurado (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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