Sectoral Effects of News Shocks

Abstract

This paper argues that an aggregate news shock reveals news about technological improvements in the durable goods sector. Better technological prospects translate into large responses of the fundamentals in the durable goods sector; much larger than the responses of the fundamentals in the non-durable goods sector. These better technological prospects, contrary to common belief, do not induce short-run comovement among fundamentals within either of the two sectors. The behaviour of inventories, an important margin that durable goods producers can use to buffer news shocks, proves to be crucial for reconciling the effects of news shocks in a two-sector model with the data.

Sectoral TFP news shocks

“…They document that unanticipated consumption and investment specic shocks can have dierent macroeconomic eects. To the best of our knowledge, the only other studies concerned with sectoral TFP news shocks are Nam and Wang (2014) and Vukotic (2016). Nam and Wang (2014) demonstrate that the decomposition of aggregate TFP into its sectoral components matters for the interpretation of the eects of news shocks.…”

“…Nam and Wang (2014) demonstrate that the decomposition of aggregate TFP into its sectoral components matters for the interpretation of the eects of news shocks. Vukotic (2016) documents responses to TFP news shocks in the durables and non-durables industries in the US manufacturing sector, suggesting that an aggregate TFP news shock reveals information about future TFP of the durable manufacturing sector. Both studies broadly support the notion that future growth shocks that emanate in the durables sector are quite important for understanding aggregate TFP news shocks.…”

“…Both studies broadly support the notion that future growth shocks that emanate in the durables sector are quite important for understanding aggregate TFP news shocks. These studies dier however in the identied economic eects of news shocks; while Nam and Wang (2014) nd that investment specic news (which nests the durables sector) are key contributors to economic uctuations, Vukotic (2016), provides evidence against this nding. Our study provides new valuable evidence on the propagation of news shocks by focussing on the diusion of technology from the investment to the consumption sector and aggregate TFP.…”

Sectoral Okun's law and cross-country cyclical differences

“…For example, Vukotic (2019) looks at the impact news shocks have on sectoral output. Similarly to monetary policy and fiscal policy, addressing the sectoral output-unemployment rate relationship can have important implications to the literature on news shocks as well.…”

What Drives Inventory Accumulation? News on Rates of Return and Marginal Costs

“…For instance, see and Schmitt-Grohe and Uribe (2012). More recently,Görtz and Tsoukalas (2017) show that TFP news shocks are relevant drivers of the cycle.2 Exceptions areCrouzet and Oh (2016) andVukotic (2019) who do not provide empirical evidence on the transmission mechanisms behind the inventory response.…”