Theory-Experimental Seminar

Céline Poilly

HEC Laussane


Seminar 3 – 14:30


In this paper, we simultaneously identify noise shocks on current demand and supply shocks. We are the first to quantify the contribution to business cycles of noise shocks on demand. A standard New Keynesian model with dispersed information is used to infer sign restrictions so as to fully identify fundamental shocks on supply and demand and their corresponding noise shocks. Our identification methodology exploits the nowcast errors on GDP growth and inflation, using the fact that fundamental and noise shocks affect the errors with opposite signs. We show that demand noise shocks, contrary to supply noise shocks, contribute substantially to business cycles.

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