Patent-Based News Shocks
We exploit firm-level data on patent grants and subsequent reactions of stocks to identify technological news shocks. Changes in stock market valuations due to announcements of individual patent grants represent expected future increases in the technology level, which we refer to as patent-based news shocks. Our patentbased news shocks resemble diffusion news, in that they do not affect total factor productivity in the short run but induce a strong permanent effect after five years. These shocks produce positive comovement between consumption, output, investment, and hours. Unlike the existing empirical evidence, patent-based news shocks generate a positive response in inflation and the federal funds rate, in line with a standard New Keynesian model. Patenting activity in electronic and electrical equipment industries, within the manufacturing sector, and computer programming and data processing services, within the services sector, play crucial roles in driving our results.