Examining Board

This thesis studies the importance of non-fundamental factors in economic and financial fluctuations. In particular, it studies how the economy responds to changes in expectations about economic fundamentals, independently of actual changes in those fundamentals, and to what extent financial fluctuations in one country spillover to other countries. The first chapter investigates how the economy reacts to the arrival of news about future technological progress. I find that the economy expands following a so-called news shock, but the bulk of the effect is delayed until technology starts to actually improve. News shocks explain around 30 percent of business cycle fluctuations, while their role is more important for explaining variations in forward-looking variables, such as stock prices and the term spread. In the second chapter, jointly written with Stephane Dées, studies the importance of animal spirits- defined as changes in expectations not supported by changes in fundamen-tals- for producing business cycles. We find that animal spirits are more important for business cycle fluctuations than permanent shocks. We use a novel identification schem