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Are Output Fluctuations Transitory?

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  • John Y. Campbell
  • N. Gregory Mankiw

Abstract

According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, ten or twenty years. Our examination of quarterly post-war United States data leads us to be skeptical about this implication. We find that a unexpected change in real GNP of one percent should change one's forecast by over one percent over a long horizon. While it is obviously imprudent to make definitive judgments regarding theories on the basis of one stylized fact alone, we believe that the great persistence of output shocks documented in this paper is an important and often neglected feature of the data that should more widely be used for evaluating theories of economic fluctuations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1916.

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Date of creation: May 1986
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Publication status: published as Campbell, John and N. Gregory Mankiw. "Are Output Fluctuations Transitory?" Quarterly Journal of Economics, pp. 857-880, November 1987.
Handle: RePEc:nbr:nberwo:1916

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  1. Campbell, John & Mankiw, Gregory, 1987. "Are Output Fluctuations Transitory?," Scholarly Articles 3122545, Harvard University Department of Economics.
  2. Romer, Christina D, 1989. "The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869-1908," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(1), pages 1-37, February.
  3. Matthew D. Shapiro & N. Gregory Mankiw, 1984. "Trends, Random Walks, and Tests of the Permanent Income Hypothesis," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 725, Cowles Foundation for Research in Economics, Yale University.
  4. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  5. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(6), pages 929-56, December.
  6. Davidson, James E. H., 1981. "Problems with the estimation of moving average processes," Journal of Econometrics, Elsevier, Elsevier, vol. 16(3), pages 295-310, August.
  7. Nelson, Charles R & Kang, Heejoon, 1981. "Spurious Periodicity in Inappropriately Detrended Time Series," Econometrica, Econometric Society, Econometric Society, vol. 49(3), pages 741-51, May.
  8. Ansley, Craig F. & Newbold, Paul, 1980. "Finite sample properties of estimators for autoregressive moving average models," Journal of Econometrics, Elsevier, Elsevier, vol. 13(2), pages 159-183, June.
  9. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867-1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, October.
  10. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, Elsevier, vol. 18(1), pages 49-75, July.
  11. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(1), pages 191-205, February.
  12. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(2), pages 139-162.
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  1. Efectos no neutrales en los shocks monetarios
    by Nicolas Cachanosky in Punto de Vista Economico on 2013-11-15 03:01:59
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