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Fundamental Economic Shocks and the Macroeconomy

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  • CHARLES L. EVANS
  • DAVID A. MARSHALL

Abstract

We ask how macroeconomic and financial variables respond to empirical measures of shocks to technology, labor supply, and monetary policy. These three shocks account for the preponderance of output, productivity, and price fluctuations. Only technology shocks have a permanent impact on economic activity. Labor inputs have little initial response to technology shocks. Monetary policy has a small response to technology shocks but "leans against the wind" in response to the more cyclical labor supply shock. This shock has the biggest impact on interest rates. Stock prices respond to all three shocks. Other empirical implications of our approach are discussed. Copyright (c) 2009 The Ohio State University No claim to original US government works.

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

Volume (Year): 41 (2009)
Issue (Month): 8 (December)
Pages: 1515-1555

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:8:p:1515-1555

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

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Cited by:
  1. Karel Mertens & Morten O. Ravn, 2013. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States," American Economic Review, American Economic Association, vol. 103(4), pages 1212-47, June.
  2. Kliem, Martin & Kriwoluzky, Alexander, 2013. "Reconciling narrative monetary policy disturbances with structural VAR model shocks?," Discussion Papers 23/2013, Deutsche Bundesbank, Research Centre.
  3. William T. Gavin & Kevin L. Kliesen, 2008. "Forecasting inflation and output: comparing data-rich models with simple rules," Review, Federal Reserve Bank of St. Louis, issue May, pages 175-192.

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