IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Temporary cycles or volatile trends? Economic fluctuations in 21 OECD economies

Listed author(s):
  • Gabriel Sterne
  • Tamim Bayoumi

Whether it is feasible to use various types of economic policy measures to reduce fluctuations in economic activity will depend on the source of the fluctuations. In particular, policy should respond in different ways to transitory disturbances to aggregate demand and more permanent shifts in aggregate supply. The paper uses small structural var autoregressions to distinguish between these two types of disturbances. The models utilise price and output data in each of 21 OECD economies. The results indicate the supply and demand disturbances are of roughly equal importance in explaining fluctuations in growth and inflation across this wide range of economies. This supports the view that economic fluctuations cannot be characterised as a cyclical changes around a fixed trend (the Keynesian synthesis) or as continual movements in underlying supply potential (a view of real business cycle theorists). Rather, they are an amalgam of both effects. Amongst the G7 economies, demand shocks have the greatest effect on output in the UK and US, and weakest in Japan and Germany. These results support the general view of activeness of government policy in these countries and provide little evidence of successful stabilisation. A method of distinguishing the effects of output and inflation on each type of disturbance is then outlined. This makes it possible to measure 'supply potential' for each economy; there is evidence of a steady decline in the rate of increase in supply potential over time, a view consistent with the 'catch up' theory of post-war economic growth.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Bank of England in its series Bank of England working papers with number 13.

in new window

Date of creation: May 1993
Handle: RePEc:boe:boeewp:13
Contact details of provider: Postal:
Bank of England, Threadneedle Street, London, EC2R 8AH

Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:13. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Media Team)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.