News or Noise? The Missing Link
58 Pages Posted: 12 Sep 2016 Last revised: 4 Nov 2017
Date Written: November 2, 2017
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: Suggested Citation