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Demand and Supply Shocks in the IS-LM Model: Empirical Findings for Five Countries / Nachfrage- und Angebotsschocks im IS-LM Modell: Empirische Ergebnisse für fünf Länder

Author

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  • Jordan Thomas J.

    (Schweizerische Nationalbank, Volkswirtschaftliche Studien, Börsenstraße 15, CH-8022 Zürich)

  • Lenz Carlos

    (Universität Basel, Wirtschaftswissenschaftliches Zentrum, Petersgraben 51, CH-4003 Basel)

Abstract

This paper analyzes whether the short-run behavior of output, the interest rate, and the price level in the U.S., Germany, France, the U.K., and Italy follows the qualitative predictions of the IS-LM model augmented by a long-run aggregate supply schedule. The use of the structural vector auto-regression methodology allows to identify three different shocks under the long-run neutrality assumptions implied by the vertical aggregate supply curve. An impulse response analysis shows that, for all countries considered, the dynamic adjustment of the variables in response to supply, monetary, and fiscal shocks is consistent with the considered version of the IS-LM model. In addition, the variance decompositions show that demand shocks explain a substantial part of output fluctuations at short horizons. This result stands in contrast to simple Real Business Cycle models which explain business cycles exclusively in terms of productivity shocks.

Suggested Citation

  • Jordan Thomas J. & Lenz Carlos, 1999. "Demand and Supply Shocks in the IS-LM Model: Empirical Findings for Five Countries / Nachfrage- und Angebotsschocks im IS-LM Modell: Empirische Ergebnisse für fünf Länder," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 218(5-6), pages 725-744, October.
  • Handle: RePEc:jns:jbstat:v:218:y:1999:i:5-6:p:725-744
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    References listed on IDEAS

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    1. Feldstein, Martin, 1996. "The Missing Piece in Policy Analysis: Social Security Reform," American Economic Review, American Economic Association, pages 1-14.
    2. Homburg, Stefan, 1997. "Kapitaldeckung als praktikable Leitidee," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 61-85.
    3. Homburg, Stefan & Richter, Wolfram, 1990. "Eine effizienzorientierte Reform der GRV," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 183-191..
    4. Bernd Raffelhüschen, 1993. "Funding social security through Pareto-optimal conversion policies," Journal of Economics, Springer, pages 105-131.
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    Cited by:

    1. Dopke, Jorg, 2001. "Macroeconomic forecasts and the nature of economic shocks in Germany," International Journal of Forecasting, Elsevier, pages 181-201.

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