https://macropaperwarehouse.com/authors/kristina-bluwstein/Kristina BluwsteinHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/patents-news-and-business-cycles/https://macropaperwarehouse.com/papers/patents-news-and-business-cycles/<p>This paper constructs an instrumental variable for technology news shocks using patent applications, relaxing all identifying assumptions traditionally used in the news-shock literature. The IV is the component of patent applications orthogonal to pre-existing beliefs (Survey of Professional Forecasters), contemporaneous and lagged monetary and fiscal policy changes (narrative accounts), and own lags. The instrument recovers news shocks that have no effect on aggregate productivity in the short run but are a significant driver of its trend component. The shock prompts a broad-based expansion in anticipation of the future TFP increase—output, consumption, and investment all rise well before any material increase in TFP is recorded. Despite these positive conditional co-movements, the news shock accounts for only a modest share of macroeconomic fluctuations at business cycle frequencies. Financial markets price in news shocks on impact, while most macro aggregates respond with some delay. Previously circulated as &ldquo;When Creativity Strikes: News Shocks and Business Cycle Fluctuations.&rdquo;</p>