A news-driven business cycle is a positive comovement in consumption, labor, investment, and output caused by positive news about the future. Standard real business cycle models do not generate it. In this paper, we find that a used market friction - i.e., sticky prices - can be a source of news-driven business cycles from news about future technology growth, technology level, and expansionary monetary policy shocks. The key mechanism is the countercyclical movements of markups through nominal rigidities.
ASJC Scopus subject areas
- Economics and Econometrics