No News in Business Cycles

A structural factor-augmented VAR model is used to evaluate the role of \u2018news shocks\u2019 in generating the business cycle. We find that existing small-scale VAR models are affected by \u2018non-fundamentalness\u2019 and therefore fail to recover the correct shock and impulse response functions; news shocks have a smaller role in explaining the business cycle than previously found in the literature; their effects are essentially in line with what predicted by standard theories and a substantial fraction of business cycle fluctuations are explained by shocks unrelated to technology