News or Noise? The Missing Link

Monday, January 28, 2019
Ryan Chahrour and Kyle Jurado

Abstract

The literature on belief-driven business cycles treats news and noise as distinct representations of agents' beliefs. We prove they are empirically the same. Our result lets us isolate the importance of purely belief-driven fluctuations. Using three prominent estimated models, we show that existing research understates the importance of pure beliefs. We also explain how differences in both economic environment and information structure affect the estimated importance of pure beliefs.

Citation: 

Chahrour, Ryan, and Kyle Jurado. 2018. "News or Noise? The Missing Link." American Economic Review, 108 (7): 1702-36.

Cover of the American Economic Review