Working Paper: CEPR ID: DP9624
Authors: Paul Beaudry; Franck Portier
Abstract: There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established.
Keywords: business cycles; expectations; Keynes; news; Pigou; recessions
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| news (Y60) | economic outcomes (F61) |
| news (Y60) | investment demand (E20) |
| investment demand (E20) | economic boom (E32) |
| erroneous expectations (D84) | recession (E32) |
| news (Y60) | employment (J68) |
| optimistic news (P27) | investment behavior (G11) |
| overinvestment (G31) | recession (E32) |