DP5176 The 'News' View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral US Data

Author(s): Paul Beaudry, Franck Portier
Publication Date: August 2005
Keyword(s): business cycle, productivity shocks, stock prices
JEL(s): E3
Programme Areas: International Macroeconomics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5176

This paper uses aggregate Japanese data and sectoral US data to explore the properties of the joint behaviour of stock prices and total factor productivity (TFP) with the aim of highlighting data patterns that are useful for evaluating business cycle theories. The approach used follows that presented in Beaudry and Portier (2004b). The main findings are that (i) in both Japan and the US, innovations in stock prices that are contemporaneously orthogonal to TFP precede most of the long run movements in total factor productivity, and (ii) such stock prices innovations do not affect US sectoral TFPs contemporaneously, but do precede TFP increases in those sectors that are driving US TFP growth, namely durable goods, and among them equipment sectors.