Abstract
Existing literature shows a strong relationship between innovations of information technology (IT) and their falling prices, which result in increased use of computer and information processing equipment, and related demand for investment and labor at the firm level. This paper investigates the macroeconomic effects of news about future IT innovations. Utilizing the maximum forecast error variance approach, we identify IT news shock from the real investment price on computers and related information processing equipment. We provide robust evidence that IT news shocks induce a co-movement in key macroeconomic variables, including output, labor hours, consumption, and investment in IT and non-IT sectors. The forecast error variance and historical decomposition analysis show that news shocks about future IT significantly contribute to business cycle fluctuations. Strong connections between news about future IT innovations and the macroeconomy suggest that news could affect firms’ investment and labor demand decisions when they undergo an organizational redesign to adopt new technology.
Published Version
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