Working Paper: CEPR ID: DP8984
Authors: Stephanie Schmitt-Grohé; Martín Uribe
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; 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) | fluctuations in output (E32) |
| anticipated shocks (D84) | fluctuations in consumption (E21) |
| anticipated shocks (D84) | fluctuations in investment (E22) |
| anticipated shocks (D84) | fluctuations in employment (J63) |
| wage markup shocks (J39) | fluctuations in employment (J63) |
| wage markup shocks (J39) | fluctuations in output (E32) |
| anticipated shocks (D84) | business cycle fluctuations (E32) |