Working Paper: CEPR ID: DP7201
Authors: Stephanie Schmitt-Grohé; Martín Uribe
Abstract: In this paper, we perform a structural Bayesian estimation of the contribution of anticipated shocks to business cycles in the postwar United States. Our theoretical framework is a real-business-cycle model augmented with four real rigidities: investment adjustment costs, variable capacity utilization, habit formation in consumption, and habit formation in leisure. Business cycles are assumed to be driven by permanent and stationary neutral productivity shocks, permanent investment-specific shocks, and government spending shocks. Each of these driving forces is buffeted by four types of structural innovations: unanticipated innovations and innovations anticipated one, two, and three quarters in advance. We find that anticipated shocks account for more than two thirds of predicted aggregate fluctuations.
Keywords: anticipated shocks; Bayesian estimation; sources of aggregate fluctuations
JEL Codes: C11; C51; E13; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated shocks (D84) | output growth (O40) |
| anticipated changes in total factor productivity (O49) | output growth (O40) |
| anticipated changes in total factor productivity (O49) | consumption (E21) |
| anticipated changes in total factor productivity (O49) | investment (G31) |
| anticipated changes in total factor productivity (O49) | hours worked (J22) |
| anticipated stationary changes in productivity (O49) | output (C67) |
| anticipated stationary changes in productivity (O49) | consumption (E21) |
| anticipated stationary changes in productivity (O49) | investment (G31) |
| anticipated stationary changes in productivity (O49) | hours worked (J22) |
| anticipated permanent increases in total factor productivity (O49) | hours worked (J22) |
| anticipated shocks (D84) | aggregate fluctuations (E10) |