Econometrica: Nov 2012, Volume 80, Issue 6

What's News in Business Cycles

DOI: 10.3982/ECTA8050
p. 2733-2764

Stephanie Schmitt‐Grohé, Martín Uribe

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.

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Supplement to "What's News In Business Cycles"

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