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Inflation and real GDP growth in the U.S.—Demand or supply driven?

Author

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  • Chang, Jui-Chuan Della
  • Jansen, Dennis W.
  • Pagliacci, Carolina

Abstract

We compute the part of real GDP growth and inflation due to structural shocks to aggregate supply and demand. We find that the Covid recession and subsequent recovery in the U.S. were driven by both demand and supply shocks.

Suggested Citation

  • Chang, Jui-Chuan Della & Jansen, Dennis W. & Pagliacci, Carolina, 2023. "Inflation and real GDP growth in the U.S.—Demand or supply driven?," Economics Letters, Elsevier, vol. 231(C).
    • Handle: RePEc:eee:ecolet:v:231:y:2023:i:c:s0165176523002999
    DOI: 10.1016/j.econlet.2023.111274
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    References listed on IDEAS

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    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. James S. Fackler & W. Douglas McMillin, 1998. "Historical Decomposition of Aggregate Demand and Supply Shocks in a Small Macro Model," Southern Economic Journal, John Wiley & Sons, vol. 64(3), pages 648-664, January.
    3. Renée Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 938-960, December.
    4. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2010. "Structural Vector Autoregressions: Theory of Identification and Algorithms for Inference," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(2), pages 665-696.
    5. Carolina Pagliacci, 2019. "Are we ignoring supply shocks? A proposal for monitoring cyclical fluctuations," Empirical Economics, Springer, vol. 56(2), pages 445-467, February.
    6. Adam Hale Shapiro, 2022. "Decomposing Supply and Demand Driven Inflation," Working Paper Series 2022-18, Federal Reserve Bank of San Francisco.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Aggregate shocks; Sign restrictions; Supply and demand growth; Supply and demand inflation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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