Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/74637
Authors: 
Hürtgen, Patrick
Year of Publication: 
2011
Series/Report no.: 
Bonn Econ Discussion Papers 10/2011
Abstract: 
This paper explores the importance of shocks to consumer misperceptions, or noise shocks, in a quantitative business cycle model. I embed imperfect information as in Lorenzoni (2009) into a new Keynesian model with price and wage rigidities. Agents learn about the components of labor productivity by only observing aggregate productivity and a noisy signal. Noise shocks lead to expectational errors about the true fundamentals triggering aggregate fluctuations. Estimating the model with Bayesian methods on US data shows that noise shocks contribute to 20 percent of consumption fluctuations at short horizons. Wage rigidity is pivotal for the importance of noise shocks.
Subjects: 
Imperfect Information
Noise Shocks
Aggregate Fluctuations
Bayesian Estimation
JEL: 
D83
E32
Document Type: 
Working Paper

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