IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/2112.html
   My bibliography  Save this paper

Sources of Output and Price Variability in a Macroeconometric Model

Author

Listed:
  • Ray C. Fair

Abstract

There has been much recent discussion about the ultimate sources of macroeconomic variability. A number of authors attribute most of this variability to only a few sources, sometimes only one. Although there may be only a few important sources, this is far from obvious, since economies seem complicated. The purpose of this paper is to provide quantitative estimates of various sources of variability using my U.S. econometric model. Stochastic simulation is used to estimate how much the overall variances of real GNP and the GNP deflator are reduced when various shocks are suppressed in the model. The results show two main things. The first is that the contribution of a given shock to the variance can vary considerably as the length ahead of the prediction varies. What is important for the one-quarter-ahead prediction may not be important for the eight-quarter-ahead prediction, and vice versa. The second is that the results imply that there are many important sources of variability for real GNP. It is not the case that one or two sources dominate. This is less true for the GNP deflator, however, where there are two very important sources, shocks to the price and wage equations and shocks to the price of imports, and one moderately important one, shocks to the government exogenous variables.

Suggested Citation

  • Ray C. Fair, 1986. "Sources of Output and Price Variability in a Macroeconometric Model," NBER Working Papers 2112, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2112
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w2112.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Shiller, 1987. "Ultimate Sources of Aggregate Variability," Cowles Foundation Discussion Papers 816, Cowles Foundation for Research in Economics, Yale University.
    2. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-115, March.
    3. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    4. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
    5. Robert E. Hall, 1986. "The Role of Consumption in Economic Fluctuations," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages 237-266 National Bureau of Economic Research, Inc.
    6. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-793, August.
    7. Ray C. Fair, 1984. "The Use of Expected Future Variables in Macroeconometric Models," NBER Working Papers 1445, National Bureau of Economic Research, Inc.
    8. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    Full references (including those not matched with items on IDEAS)

    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:nbr:nberwo:2112. 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: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.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.

    If CitEc recognized a reference but did not link an item in RePEc 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 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.