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

Author

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

Abstract

We provide a few new empirical facts that any theoretical model of the US macroeconomy should feature in order to be consistent with the data. 1) There are two classes of shocks: demand and supply. Supply shocks have long-run effects on economic activity, demand shocks do not. 2) Both supply and demand shocks are important sources of business cycles fluctuations. 3) Supply shocks are the primary driver for consumption fluctuations, demand shocks for investment. 4) The demand shock is closely related to the credit spread, while the supply shock is essentially a news technology shock. The results are obtained using a novel frequency domain method to identify demand and supply shock.

Suggested Citation

  • Forni, Mario & Gambetti, Luca & Granese, Antonio & Sala, Luca & Soccorsi, Stefano, 2023. "An American Macroeconomic Picture. Supply and Demand Shocks in the Frequency Domain," CEPR Discussion Papers 18070, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18070
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    Cited by:

    1. is not listed on IDEAS
    2. Granese, Antonio, 2026. "Two main business cycle shocks are better than one," Journal of Economic Dynamics and Control, Elsevier, vol. 182(C).

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    JEL classification:

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

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