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What caused the early millennium slowdown? Evidence based on vector autoregressions

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  • Gert Peersman

    (Department of Financial Economics, Ghent University, Belgium)

Abstract

This paper uses a simple VAR for the USA and Euro area to analyse the underlying shocks of the early millennium slowdown, i.e. supply, demand, monetary policy and oil price shocks. The results of two identification strategies are compared. One is based on traditional zero restrictions and, as an alternative, an identification scheme based on more recent sign restrictions is proposed. The main conclusion is that the recent slowdown is caused by a combination of several shocks: negative aggregate supply and aggregate spending shocks, the increase of oil prices in 1999, and restrictive monetary policy in 2000. These shocks are more pronounced in the USA than the Euro area. The results are somewhat different depending on the identification strategy. It is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks. Copyright © 2005 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 20 (2005)
Issue (Month): 2 ()
Pages: 185-207

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Handle: RePEc:jae:japmet:v:20:y:2005:i:2:p:185-207

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  1. Fabio Canova & Gianni De Nicolo, 2000. "Monetary disturbances matter for business fluctuations in the G-7," International Finance Discussion Papers 660, Board of Governors of the Federal Reserve System (U.S.).
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  8. Fabio Canova & Gianni de Nicoló, 1999. "On the sources of business cycles in the G-7," Economics Working Papers 459, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2000.
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  10. Mads Kieler & Tuomas Saarenheimo, 1998. "Differences in monetary policy transmission? A case not closed," European Economy - Economic Papers 132, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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  15. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
  16. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  17. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
  18. Daniel F. Waggoner & Tao Zha, 1997. "Normalization, probability distribution, and impulse responses," Working Paper 97-11, Federal Reserve Bank of Atlanta.
  19. Vincent Labhard, 2003. "What caused the 2000/01 slowdown? Results from a VAR analysis of G7 GDP components," Bank of England working papers 190, Bank of England.
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  1. > Econometrics > Time Series Models > VAR Models > Sign Restrictions
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