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  3. American Economic Review
  4. September 2006
  5. Stock Prices, News, and Economic Fluctuations

Stock Prices, News, and Economic Fluctuations

  • Paul Beaudry
  • Franck Portier
American Economic Review
vol. 96, no. 4, September 2006
(pp. 1293-1307)
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Abstract

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)

Citation

Beaudry, Paul, and Franck Portier. 2006. "Stock Prices, News, and Economic Fluctuations." American Economic Review, 96 (4): 1293-1307. DOI: 10.1257/aer.96.4.1293

Additional Materials

JEL Classification

  • E32 Business Fluctuations; Cycles
  • E44 Financial Markets and the Macroeconomy
  • G14 Information and Market Efficiency; Event Studies; Insider Trading