What's News in Business Cycles
Stephanie Schmitt-Grohé, Martín Uribe
Econometrica · 2012 · Volume 80 · Issue 6
Abstract
In the context of a dynamic, stochastic, general equilibrium model, we perform classical maximum likelihood and Bayesian estimations of the contribution of anticipated shocks to business cycles in the postwar United States. Our identification approach relies on the fact that forward-looking agents react to anticipated changes in exogenous fundamentals before such changes materialize. It further allows us to distinguish changes in fundamentals by their anticipation horizon. We find that anticipated shocks account for about half of predicted aggregate fluctuations in output, consumption, investment, and employment.
Keywords
Anticipated shocks, sources of aggregate fluctuations, Bayesian estimation
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