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Title: What's News in Business Cycles

Author(s): Stephanie Schmitt-Grohé and Martín Uribe

Publication Date: May 2012

Keyword(s): Anticipated Shocks, Bayesian Estimation. and Sources of Aggregate Fluctuations

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Schmitt-Grohé, S and Uribe, M. 2012. 'What's News in Business Cycles'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8984