American Economic Review: Vol. 96 No. 4 (September 2006)
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Stock Prices, News, and Economic Fluctuations
Beaudry, Paul, and Franck Portier. 2006. "Stock Prices, News, and Economic Fluctuations." American Economic Review, 96(4): 1293-1307.
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 for this shock is that it represents news about future technological opportunities which is first captured in stock prices. This shock causes a boom in consumption, investment, and hours worked that precedes productivity growth by a few years, and explains about 50 percent of business cycle fluctuations. (JEL G12, E32, E44)
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