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Source of Output dynamics in USA vs. Great Britain: supply, demand or nominal shocks


  • Rzigui, Lotfi


The purpose of the present paper is to extend Clarida and Gali (1994) from structural specification to common trend specification and to study the relative importance of nominal, supply and demand shocks in relative output dynamics. Using their long run restrictions for given cointegration vectors, we can identify number of permanent shocks assumed to affect long run dynamics of real activity and estimate the common trend model. From the estimated model we analyze source of output dynamics in USA vs. Great Britain during 1950-2004. The common trend analysis indicates that supply shock is more important than others shocks to explain real activity dynamics and confirms stylized fact of real business cycle theory.

Suggested Citation

  • Rzigui, Lotfi, 2005. "Source of Output dynamics in USA vs. Great Britain: supply, demand or nominal shocks," MPRA Paper 631, University Library of Munich, Germany, revised 20 Oct 2006.
  • Handle: RePEc:pra:mprapa:631

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    Supply Shock; Demand Shocks; Nominal Shocks; Output Dynamics; Common Trend Model;

    JEL classification:

    • 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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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