Transcript Discussion by Laurent Weill

New Shocks: Different Effects
in Boom and Recession
Maria Bolboaca and Sarah Fischer
Discussion by
Laurent Weill
University of Strasbourg & Bank of Finland
The paper in one slide
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Very interesting paper on the transmission of news shocks.
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Empirical contribution to this literature by considering that the
linear world is too restrictive.
“Strong bad news can make a boom end, while similarly
strong good news do not have the same power to take the
economy out of a recession.
After a good news in normal times, there is a short-run boom
followed by a bust in the medium-run.”
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I have four comments.
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Comment 1: motivation of the paper
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Wonderful motivation for the paper with the recent financial
crisis: one channel of transmission from the financial sphere
to the real world is likely to have been news…
… but you use it in a rather poor way.
OK, you mention it, but you only use one reference to stress
the relevance of this channel of transmission: Petev and
Pistaferri (2012).
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Comment 1: motivation of the paper
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In addition, it is one working paper from Stanford.
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And this paper is used to motivate the paper twice with
exactly the same words in the introduction and in the
conclusion:
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“As Petev and Pistaferri (2012) showed, in the case of the
U.S. economy, growth in personal spending is closely linked
to consumer confidence.”
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Comment 1: motivation of the paper
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You should cite more references for the influence of news in
the transmission of the financial crisis.
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Chudik and Fratzcher (European Economic Review, 2011)
Fratzscher (Journal of International Economics, 2012)
Raddatz and Schmuckler (Journal of International
Economics, 2012)
Bhanot et al. (Journal of Banking and Finance, 2014)
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Comment 2: behavioral macroeconomics
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« Nothing guarantees that the responses to a bout of
optimism (or a good news as we define a positive shock on
the index of consumer sentiment) are the same regardless of
the state of the economy. »
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« So far news shocks on future technological innovation have
been analyzed in linear settings. We argue that the linear
world is too restrictive and that we need to allow for statedependent reaction to news.”
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« The asymmetry between good and bad news does not
seem to play an important role » (in the conclusion)
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Comment 2: behavioral macroeconomics
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You should relate your paper to behavioral economics.
Prospect theory: “the hurt of a $1000 loss is more painful
than the benefit of a $1000 gain”.
Not mentioned once.
-While your hypotheses are related to the psychology of
economic agents (consumer confidence).
-While this literature provides support for a nonlinear
analysis.
Then you can strengthen the motivation of your research
question by mentioning behavioral economics.
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Comment 3: supply-side vs. demand-side
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Literature on news-driven business cycles is only related to
what is going on on the supply side.
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But the motivation of the paper in line with the financial crisis
and consumer confidence looks to me more related to the
demand side.
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And it is also the case for you as you write.
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Comment 3: supply-side vs. demand-side
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“As Petev and Pistaferri (2012) showed, in the case of the
U.S. economy, growth in personal spending is closely linked
to consumer confidence.
When consumer confidence is low, people reduce their
spendings and borrow less.
Faced with lower demand, businesses do not buy new
equipment or hire new people.”
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Comment 3: supply-side vs. demand-side
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Some contradiction between the motivation and the empirical
investigation…
…or at least some limits for the relevance of the empirical
study.
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Shouldn’t we care more about demand-side news shocks
given the financial crisis?
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Shouldn’t we also consider how consumer confidence
influences demand indicators (investment, consumption) ?
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Why only considering the impact on TFP?
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Comment 4: lack of precision
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Be more precise in the argumentation
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“Survey data shows that in recession consumer confidence is
low while in expansion it is high”.
Which data?
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“Data indicate that the transition from good times to recession
is in general steep and fast while the recovery phase is much
longer and more gradual”.
Which data?
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