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Using the Aggregate Demand-Aggregate Supply Model to Identify Structural Demand-Side and Supply-Side Shocks: Results Using a Bivariate VAR

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  • Cover, James Peery
  • Enders, Walter
  • Hueng, C. James

Abstract

This paper uses the short-run restrictions implied by a simple aggregate demand-aggregate supply model as an aid in identifying structural shocks. Combined with the Blanchard-Quah restriction, it allows estimation of the slope of the aggregate supply curve, the variances of structural demand and supply shocks, and the extent to which structural demand and supply shocks are correlated. This paper finds that demand and supply shocks are highly correlated and that demand shocks possibly can account for as much as 82% of the long-run forecast error variance of real U.S. GDR

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 3 (April)
Pages: 777-790

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:3:p:777-790

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Bashar, Omar H M N, 2009. "The Nature of Aggregate Demand and Supply Shocks in ASEAN Countries," MPRA Paper 19881, University Library of Munich, Germany.
  2. Min Gong & Wenpu Li, 2010. "Assessing the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation," Frontiers of Economics in China, Springer, vol. 5(3), pages 464-488, September.
  3. Jean-Sébastien Pentecôte, 2011. "Long-run identifying restrictions on VARs within the AS-AD framework," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201125, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  4. Bashar, Omar H.M.N., 2012. "The dynamics of aggregate demand and supply shocks in ASEAN countries," Journal of Asian Economics, Elsevier, vol. 23(5), pages 507-518.
  5. Cover, James P. & Mallick, Sushanta K., 2012. "Identifying sources of macroeconomic and exchange rate fluctuations in the UK," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1627-1648.
  6. Le, Ha, 2014. "Dynamics of Business Cycles in Vietnam: A comparison with Indonesia and Philippines," MPRA Paper 57010, University Library of Munich, Germany, revised 01 Jul 2014.
  7. Souki, Kaouthar, 2008. "Assessing the effects of U.S. shocks on the Canadian economy using alternative identification methods," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 193-213, August.
  8. Hans Genberg & Pierre L. Siklos, 2009. "Revisiting the Shocking Aspects of Asian Monetary Unification," Working Papers 192009, Hong Kong Institute for Monetary Research.
  9. Imran Shah, 2012. "Revisiting the Dynamic Effects of Oil Price Shock on Small Developing Economies," Bristol Economics Discussion Papers 12/626, Department of Economics, University of Bristol, UK.
  10. Masahiko Shibamoto & Ryuzo Miyao, 2008. "Understanding Output and Price Dynamics in Japan: Why Have Japan's Price Movements Been Relatively Stable Since the 1990s?," Discussion Paper Series 219, Research Institute for Economics & Business Administration, Kobe University.
  11. Campbell, Carl M., 2009. "An efficiency wage - imperfect information model of the aggregate supply curve," MPRA Paper 15296, University Library of Munich, Germany.
  12. Zuzana Brixiova & Margaret H. Morgan & Andreas Wörgötter, 2010. "On The Road to Euro: How Synchronized Is Estonia with the Euro zone?," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(1), pages 203-227, June.
  13. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
  14. Keating, John W., 2013. "What do we learn from Blanchard and Quah decompositions of output if aggregate demand may not be long-run neutral?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 203-217.
  15. John W. Keating, 2013. "What Do We Learn from Blanchard and Quah Decompositions If Aggregate Demand May Not be Long-Run Neutral?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201302, University of Kansas, Department of Economics.
  16. James Peery Cover & C. James Hueng, 2006. "Why Did the Sign of the Price-Output Correlation Change? Evidence from a Structural VAR with GARCH Errors," Working Papers 200602, Ball State University, Department of Economics, revised Mar 2006.

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