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What Caused the Early Millennium Slowdown? Evidence Based on Vector Autoregressions

  • Peersman, Gert

This Paper uses a simple VAR for the industrialized world (aggregate of 17 countries), the US and the euro area to analyse the underlying shocks of the recent slowdown, i.e. supply, demand, monetary policy and oil price shocks. The results of two identification strategies are compared. One is based on traditional zero restrictions and, as an alternative, an identification scheme based on more recent sign restrictions is proposed. The main conclusion is that the recent slowdown is caused by a combination of several shocks: A negative aggregate supply and aggregate spending shock, the increase of oil prices in 1999, and restrictive monetary policy in 2000. These shocks are more pronounced in the US than the Euro area. The results are somewhat different depending on the identification strategy. It is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4087.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4087
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  1. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
  2. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," Working Paper 94-2, Federal Reserve Bank of Atlanta.
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  8. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
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  10. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 709-38, May.
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  18. Daniel F. Waggoner & Tao Zha, 1997. "Normalization, probability distribution, and impulse responses," Working Paper 97-11, Federal Reserve Bank of Atlanta.
  19. repec:dgr:kubcen:200188 is not listed on IDEAS
  20. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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