IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/13.html
   My bibliography  Save this paper

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

Author

Listed:
  • Gabriel Sterne
  • Tamim Bayoumi

Abstract

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.

Suggested Citation

  • Gabriel Sterne & Tamim Bayoumi, 1993. "Temporary cycles or volatile trends? Economic fluctuations in 21 OECD economies," Bank of England working papers 13, Bank of England.
  • Handle: RePEc:boe:boeewp:13
    as

    Download full text from publisher

    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1993/wp13.pdf
    Download Restriction: no

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Charles St-Arnaud, 2004. "Une approche éclectique d'estimation du PIB potentiel pour le Royaume-Uni," Staff Working Papers 04-46, Bank of Canada.
    2. Jan Gottschalk & Willem Van Zandweghe, 2003. "Do Bivariate SVAR Models with Long-Run Identifying Restrictions Yield Reliable Results? An Investigation into the Case of Germany," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(I), pages 55-81, March.
    3. ODIA NDONGO, Yves Francis, 2007. "Les sources des fluctuations marcoéconomiques au Cameroun," MPRA Paper 1308, University Library of Munich, Germany.
    4. Louis, Rosmy & Osman, Mohammad & Balli, FAruk, 2007. "On The Road to Monetary Union – Do Arab Gulf Cooperation Council Economies React in the same way to United States' Monetary Policy Shocks?," MPRA Paper 11610, University Library of Munich, Germany, revised Nov 2008.
    5. Funke, Michael, 1997. "Supply potential and output gaps in West German manufacturing," International Journal of Forecasting, Elsevier, vol. 13(2), pages 211-222, June.
    6. Alejandro D. Jacobo, 2002. "Taking the business cycle´s pulse to some Latin American economies: Is there a rhythmical beat?," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 17(2), pages 219-245.
    7. Attfield, Clifford L. F. & Silverstone, Brian, 1998. "Okun's Law, Cointegration and Gap Variables," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 625-637, July.
    8. Dopke, Jorg, 2001. "Macroeconomic forecasts and the nature of economic shocks in Germany," International Journal of Forecasting, Elsevier, vol. 17(2), pages 181-201.
    9. Mark S Astley & Tony Yates, 1999. "Inflation and real disequilibria," Bank of England working papers 103, Bank of England.
    10. Ewa Wrobel & Malgorzata Pawlowska, 2002. "Monetary transmission in Poland: some evidence on interest rate and credit channels," NBP Working Papers 24, Narodowy Bank Polski, Economic Research Department.
    11. jose ramos pires manso, 2004. "Economical Versus Political Cycles In An Iberian Manufacturing Sector," Industrial Organization 0404003, EconWPA.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/boegvuk.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.