Stock Prices, News and Economic Fluctuations

   (882 K)

In this paper we show that the joint behavior of stock prices and TFP favors a view of business cycles driven largely by a shock that does not affect productivity in the short run -- and therefore does not look like a standard technology shock -- but affects productivity with substantial delay -- and therefore does not look like a monetary shock. One structural interpretation we suggest for this shock is that it represents news about future technological opportunities which is first captured in stock prices. We show that this shock causes a boom in consumption, investment and hours worked that precede productivity growth by a few years. Moreover, we show that this shock explains about 50\% of business cycle fluctuations.

Published:

• Beaudry, Paul and Franck Portier. "Stock Prices, News, And Economic Fluctuations," American Economic Review, 2006, v96(4,Sep), 1293-1307. ,
• Stock Prices, News and Economic Fluctuations , Paul Beaudry, Franck Portier, in Enhancing Productivity (NBER-CEPR-TCER-Keio conference) (2005), Journal of the Japanese and International Economies, Volume 19, issue 4 (Academic Press)
  

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