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Comment

Portier, F; (2015) Comment. NBER Macroeconomics Annual , 29 (1) pp. 265-278. 10.1086/680626. Green open access

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Abstract

In “Whither News Shocks?”, Barsky, Basu, and Lee (2014) are nicely updating and extending the analysis of Barsky and Sims (2011). They identify a technological news shock as the innovation in the expectation of TFP at a fixed horizon k in the future (typically a few years) that does not affect TFP on impact—that is, the part of Et [TFPt+k] – Et–1[TFPt+k] that is orthogonal to the innovation in TFPt . The main result that I take from their work is, as they clearly state it, that “the impact effects of news shocks clearly does not induce the kind of comovement that is characteristic of business cycles. In most of our specifications, we find that consumption rises when there is good news, but investment, consumer durables purchases and hours worked all fall on impact.” These results echo those of Barsky and Sims (2011), and contradict those of Beaudry and Portier (2006) and Beaudry and Portier (2014). In this comment, I discuss the properties that a news shock should have in order to capture the short-run effect of a shift in expectations. I show, as already acknowledged by Barsky, Basu, and Lee, that their identified shock moves TFP after one or two periods, and therefore mixes changes in expectation and changes in current fundamentals. I then propose to identify a technological diffusion shock,1 and show that in that case, I obtain again a Beaudry and Portier (2006) type of response. I conclude that, if one is mainly interested in measuring the response of the economy to a shift in expectation caused by a technological news, it is important to first check that the identified shock does not move TFP in the short run. When it is so, the news creates a typical aggregate boom.

Type: Article
Title: Comment
Open access status: An open access version is available from UCL Discovery
DOI: 10.1086/680626
Publisher version: http://doi.org/10.1086/680626
Language: English
Additional information: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions.
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10039997
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