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Permanent and Transitory Shocks in Real Output: Estimates from Nineteenth-Century and Postwar Economies

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  • Keating, John W
  • Nye, John V

Abstract

This paper reexamines Olivier J. Blanchard and Danny Quah's (1989) aggregate supply/demand model interpretation of output shocks using data from ten countries. Although postwar data support their interpretation, the model is not supported by nineteenth=century data. In the postwar period, permanent output shocks cause the price level to move in the opposite direction (like supply shocks) and temporary output shocks cause the price level to move in the same direction (like demand shocks). But with pre-World War I data, permanent output shocks typically cause price level movements in the same direction. The results are systematic and cannot be explained by data problems.

Suggested Citation

  • Keating, John W & Nye, John V, 1998. "Permanent and Transitory Shocks in Real Output: Estimates from Nineteenth-Century and Postwar Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 231-251, May.
  • Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:2:p:231-51
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    Cited by:

    1. Alfonso Mendoza Velázquez & Peter N. Smith, 2013. "Equity Returns and the Business Cycle: the Role of Supply and Demand Shocks," Manchester School, University of Manchester, vol. 81, pages 100-124, September.
    2. Constantin Laura-Gabriela & Cernat-Gruici Bogdan & Iamandi Irina-Eugenia, 2014. "Investigating Financial Innovation And European Capital Markets. The Case Of Catastrophe Bonds And Listed Reinsurance Companies," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 6-15, December.
    3. Beckworth, David, 2007. "The postbellum deflation and its lessons for today," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 195-214, August.
    4. Keating, John W. & Nye, John V., 1999. "The Dynamic Effects of Aggregate Demand and Supply Disturbances in the G7 Countries," Journal of Macroeconomics, Elsevier, vol. 21(2), pages 263-278, April.
    5. Bordo, Michael D. & Jonung, Lars, 1994. "Monetary Regimes, Inflation and Monetary Reform: An Essay in Honor of Axel Leijonhufvud," SSE/EFI Working Paper Series in Economics and Finance 16, Stockholm School of Economics.
    6. António Portugal Duarte & João Sousa Andrade, 2012. "How the Gold Standard functioned in Portugal: an analysis of some macroeconomic aspects," Applied Economics, Taylor & Francis Journals, vol. 44(5), pages 617-629, February.
    7. Michael Bordo & Andrew Filardo, 2005. "Deflation and monetary policy in a historical perspective: remembering the past or being condemned to repeat it?," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 799-844, October.
    8. Steven Morling, 2002. "Output Adjustment in Developing Countries: a Structural Var Approach," Discussion Papers Series 307, School of Economics, University of Queensland, Australia.
    9. Tamim Bayoumi and Barry Eichengreen., 1994. "The Stability of the Gold Standard and the Evolution of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-040, University of California at Berkeley.
    10. 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.
    11. Keating, John & Valcarcel, Victor, 2012. "Greater moderations," Economics Letters, Elsevier, vol. 115(2), pages 168-171.
    12. Michael D. Bordo & Angela Redish, 2003. "Is Deflation depressing? Evidence from the Classical Gold Standard," NBER Working Papers 9520, National Bureau of Economic Research, Inc.
    13. Ivanov, Ventzislav & Kilian, Lutz, 2001. "A Practitioner's Guide to Lag-Order Selection for Vector Autoregressions," CEPR Discussion Papers 2685, C.E.P.R. Discussion Papers.
    14. Falk, Barry & Lee, Bong-Soo, 1999. "Revisiting the Phillips Curve with a Structural VAR," ISU General Staff Papers 199903010800001326, Iowa State University, Department of Economics.
    15. Ivanov Ventzislav & Kilian Lutz, 2005. "A Practitioner's Guide to Lag Order Selection For VAR Impulse Response Analysis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(1), pages 1-36, March.
    16. John Keating, 2004. "Interpreting Permanent and Transitory Shocks to Output When Aggregate Demand May Not Be Neutral in the Long-run," Econometric Society 2004 North American Summer Meetings 608, Econometric Society.
    17. Alves, Lucilio Rogerio Aparecido & Barros, Geraldo Sant'Ana de Camargo & Piedade Bacchi, Mirian Rumenos, 2008. "Produção e Exportação de Algodão: Efeitos de Choques de Oferta e de Demanda," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 62(4), December.
    18. 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.
    19. Michael D. Bordo, 1993. "The gold standard, Bretton Woods and other monetary regimes: a historical appraisal," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 123-191.
    20. William Miles, 2003. "Fixed exchange rates and sticky prices in emerging markets," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(5), pages 575-586.
    21. John W. Keating, 2013. "Interpreting Permanent Shocks to Output When Aggregate Demand May Not Be Neutral in the Long Run," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 747-756, June.
    22. 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.
    23. Valcarcel, Victor J. & Wohar, Mark E., 2013. "Changes in the oil price-inflation pass-through," Journal of Economics and Business, Elsevier, vol. 68(C), pages 24-42.
    24. Kevin Lee & Kalvinder Shields, "undated". "Information, Business Survey Forecasts and Measurement of Output Trends in Six European Economies," Discussion Papers in European Economics 99/7, Department of Economics, University of Leicester.
    25. Keating, John W., 2000. "Macroeconomic Modeling with Asymmetric Vector Autoregressions," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 1-28, January.

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