I am excited to attend the UC San Diego macroeconomics seminar tomorrow at 3:30. Kristoffer Nimark will be presenting a paper called "Man-Bites-Dog Business Cycles." From the abstract:
The newsworthiness of an event is partly determined by how unusual it is andThere is still a lot to learn about how information and uncertainty affect the macroeconomy. There are so many news headlines like ``Prolonged Uncertainty Impacting Small Businesses’ Ability to Create Jobs" and "Weak job picture, uncertainty drove QE3," but very little understanding of how uncertainty is generated and propagated and how it interacts with the business cycle. One interesting recent paper on this topic is Nicholas Bloom and Scott Baker's paper, "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments." I am doing some research in this area myself.
this paper investigates the business cycle implications of this fact. We present a tractable
model that features an information structure in which some types of signals are more likely
to be observed after unusual events. Counterintuitively, more signals may then increase
uncertainty. When embedded in a simple business cycle model, the proposed information
structure can help us understand why we observe (i) large changes in macro economic
aggregate variables without a correspondingly large change in underlying fundamentals (ii)
persistent periods of high macroeconomic volatility and (iii) a positive correlation between
absolute changes in macro variables and the cross-sectional dispersion of expectations as
measured by survey data.