News-driven business cycles in small open economies

Kamber, Gunes, Theodoridis, Konstantinos ORCID: https://orcid.org/0000-0002-4039-3895 and Thoenissen, Christoph 2017. News-driven business cycles in small open economies. Journal of International Economics 105 , pp. 77-89. 10.1016/j.jinteco.2016.12.005

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Abstract

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 business cycle co-movements in response to news shocks. Second, we use VAR analysis to identify news shocks using data on four advanced small open economies. We find 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.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Additional Information:	This is an open access article under the CC BY license.
Publisher:	Elsevier
ISSN:	0022-1996
Date of First Compliant Deposit:	6 November 2018
Date of Acceptance:	17 December 2016
Last Modified:	15 May 2023 07:03
URI:	https://orca.cardiff.ac.uk/id/eprint/115871

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