News shocks and asset price volatility in general equilibrium

Abstract

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News-Driven Business Cycles: Insights and Challenges

“…Another step is made by Angeletos 97 See also Karnizova (2012) for an account of the 1995-2003 U.S. boom-bust cycle with unrealized TFP news estimated from the data. More generally, whether news shocks amplify or not fluctuations has been studied by Fève, Matheron, and Sahuc (2009) in an abstract framework, by Wohltmann and Winkler (2009) and Winkler and Wohltmann (2012) within the Smets and Wouters' 2003 model and by Matsumoto et al (2011). 98 The literature on dispersed information and social learning is vast.…”

Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks

“…However, we find that the relative volatility of the real exchange rate in the case with news shocks is approximately twice as large as in the case with contemporaneous shocks. Matsumoto et al (2011) find that introducing news shocks to standard DSGE models can help to increase the volatility of asset prices in these models. Our simulation results on the exchange rate are consistent with this finding.…”

News and Uncertainty Shocks

“…Matsumoto et al. (2011) show that news shocks are positively related to equity prices and equity volatility. Indeed, our evidence in Figure 1 is that both financial uncertainty and stock prices increase in the short term as a response to news shocks.…”

“…Matsumoto et al. (2011) argue that an increase in stock market volatility arises from the delayed adjustment of prices by firms following a news shock, but this effect tends to vanish over time; thus, the effects are short‐lived.…”