The news-shock literature interprets empirical news-shock identifications as signals about future productivity. Under this view, changes in productivity cause changes in expectations. I investigate an alternative interpretation whereby changes in expectations cause changes in productivity. I present a model where firms adopt the technology of a deterministic frontier, and where self-fulfilling expectational-shocks unleash a frenzy of adoption through which firms increase productivity. Consistent with the news evidence, stock prices and aggregate activity boom, yet TFP increases with a lag. Simulations using i.i.d. expectational-shocks yield moments consistent with the data, and qualitatively capture both high-frequency boom-busts as well as lower-frequency fluctuations. Finally, estimating a Beaudry-Portier style VECM on the simulated model output to identify a \news shock" recovers impulse response functions largely consistent with the Beaudry and Portier (2006) results.

Additional Metadata
Keywords expectations-driven business cycle, technological adoption, sunspot, multiple equilibria, indeterminacy, animal spirits, technology, news shock, intangible capital, embodied, productivity, technological adoption
Publisher Department of Economics
Series Carleton Economic Papers
Citation
Gunn, C. (2013). Animal Spirits as an Engine of Boom-Busts and Throttle of Productivity Growth (No. CEP 13-04). Carleton Economic Papers. Department of Economics.