Mainly employment: survey-based news and the business cycle

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 07 January 2022

Staff Working Paper No. 958

By Riccardo M Masolo

Surprises in survey responses on perceived business conditions produce strong comovement in unemployment, consumption, investment, and output, and a muted response of inflation and measured total factor productivity (TFP). This suggests that news play an important role in explaining business cycle fluctuations, but also that attention should not be limited to TFP news. Employment news are the main driver of the overall index of reported business conditions. Vector autoregression impulse responses can be matched by a New Keynesian model in which individual risk, a positive supply of liquid funds, and complementarity between labour and capital inputs are modelled explicitly and the assumption of free entry of vacancies is done away with.

Mainly employment: survey-based news and the business cycle

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