TFP, News, and "Sentiments: " The International Transmission of Business Cycles / Andrei A. Levchenko, Nitya Pandalai-Nayar.

Format:

Book

Author/Creator:

Levchenko, Andrei A.

Contributor:

National Bureau of Economic Research.

Pandalai-Nayar, Nitya.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21010.

NBER working paper series no. w21010

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

TFP, News, and Sentiments

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We propose a novel identification scheme for a non-technology business cycle shock, that we label "sentiment." This is a shock orthogonal to identified surprise and news TFP shocks that maximizes the short-run forecast error variance of an expectational variable, alternatively a GDP forecast or a consumer confidence index. We then estimate the international transmission of three identified shocks - surprise TFP, news of future TFP, and "sentiment" - from the US to Canada. The US sentiment shock produces a business cycle in the US, with output, hours, and consumption rising following a positive shock, and accounts for the bulk of short-run business cycle fluctuations in the US. The sentiment shock also has a significant impact on Canadian macro aggregates. In the short run, it is more important than either the surprise or the news TFP shocks in generating business cycle comovement between the US and Canada, accounting for up to 50% of the forecast error variance of Canadian GDP and about one-third of Canadian hours, imports, and exports. The news shock is responsible for some comovement at 5-10 years, and surprise TFP innovations do not generate synchronization.

Notes:

Print version record

March 2015.