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An American Macroeconomic Picture: Supply and Demand Shocks in the Frequency Domain

Author

Listed:
  • Mario Forni
  • Luca Gambetti
  • Antonio Granese
  • Luca Sala
  • Stefano Soccorsi

Abstract

We provide a few new empirical facts that theoretical models should feature in order to be consistent with the data. (i) There are two classes of shocks: demand and supply. Supply shocks have long-run effects on economic activity; demand shocks do not. (ii) Both supply and demand shocks are important sources of business cycles' fluctuations. (iii) Supply shocks are the primary driver for consumption fluctuations, demand shocks for investment. (iv) The demand shock is closely related to the credit spread, while the supply shock is essentially a news shock. The results are obtained using a novel frequency domain method.

Suggested Citation

  • Mario Forni & Luca Gambetti & Antonio Granese & Luca Sala & Stefano Soccorsi, 2025. "An American Macroeconomic Picture: Supply and Demand Shocks in the Frequency Domain," American Economic Journal: Macroeconomics, American Economic Association, vol. 17(3), pages 311-341, July.
    • Handle: RePEc:aea:aejmac:v:17:y:2025:i:3:p:311-41
    DOI: 10.1257/mac.20230295
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    More about this item

    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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