A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks -which are shocks that have no short or long run effects on productivity -and fluctuations driven by unexpected changes in technology. In this paper we propose a means of evaluating this view and we show that it is strongly at odds with the data. In contrast, we show that the data favors a view of business cycles driven primarily by a shock that does not affect productivity in the short run -therefore it looks like a demand shock -but affects productivity in the long run. The structural interpretation we suggest for this shock is that it represents news about future technological opportunities. We show that this shock explains about 50% of business cycle fluctuations and therefore deserves to be acknowledged and further understood by macroeconomists. Stock Prices, News and Economic Fluctuations January 2003Abstract A common view in macroeconomics is that business cycles can be meaningfully decomposed into fluctuations driven by demand shocks -which are shocks that have no short or long run effects on productivity -and fluctuations driven by unexpected changes in technology. In this paper we propose a means of evaluating this view and we show that it is strongly at odds with the data. In contrast, we show that the data favors a view of business cycles driven primarily by a shock that does not affect productivity in the short run -therefore it looks like a demand shock -but affects productivity in the long run. The structural interpretation we suggest for this shock is that it represents news about future technological opportunities. We show that this shock explains about 50% of business cycle fluctuations and therefore deserves to be acknowledged and further understood by macroeconomists.

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This paper explores a theory of business cycles in which recessions and booms arise due to diffi culties encountered by agents in properly forecasting the economy's future needs in terms of capital. The idea has a long history in the macroeconomic literature, as reflected by the work of Pigou [19 26]. The contribution of this paper is twofold. First, we illustrate the type of general equilibrium structure that can give rise to such phenomena. Second, we examine the extent to which such a model can explain the observed pattern of U. S. recessions (frequency, depth) without relying on technological regress. We argue that such a model off recession and of the Asia downturns of the late nineties.

What explains the current low rate of employment in the US? While there has been substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labor market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This deskilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we o↵er a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the reversal in the data that we present, and o↵ers a novel interpretation of the current employment situation in the US.