News-driven business scycles in small open economies

Economics

Speaker:	Christoph Thoenissen, University of Sheffield
Date:	Friday 3 October 2014
Time:	16.15 - 17.45
Location:	Bateman Lecture Theatre, Building One

The focus of this paper is on news-driven business cycles in small open economies.

We make two significant contributions. First, we develop a small open economy

model where the presence of financial frictions permits the replication of data con-

gruent co-movements in response to news shocks. Second, use VAR analysis to

identify news shocks using data on four advanced small open economies. We find,

in line with the previous VAR evidence for the US economy, that expected shocks

about the future Total Factor Productivity generate business cycle co-movements

in output, hours, consumption and investment. We also find that news shocks are

associated with countercyclical current account dynamics. Our findings are robust

across a number of alternative identification schemes.