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Demand and productivity components of business cycles: Estimates and implications

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  • Dufourt

    (BETA - University Louis Pasteur - Strasbourg I)

Abstract

Standard stochastic growth models provide theoretical restrictions on output decomposition which can be used to investigate whether productivity shocks played a major role in observed business cycles. Applying these restrictions to US data leads to the following findings: i) Business cycles implied by productivity shocks are mildly correlated to overall fluctuations and help account for a few episodes of US postwar recessions. However, only 20% of US fluctuations can be explained by these shocks. ii) Most fluctuations seem instead to be due to "nominal demand" shocks, i.e. shocks which move output and prices in the same direction, but whose effects on output are ultimately transitory. iii) Canonical sticky price models in the New-Neoclassical Synthesis tradition can account for the cyclical comovements of output and prices, but canonical, frictionless, RBC models cannot.

Suggested Citation

  • Dufourt, 2005. "Demand and productivity components of business cycles: Estimates and implications," Macroeconomics 0501013, EconWPA, revised 09 Nov 2005.
  • Handle: RePEc:wpa:wuwpma:0501013
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    Cited by:

    1. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2006. "Measuring the Sources of Cyclical Fluctuations in the G7 Economies," Economics & Statistics Discussion Papers esdp06028, University of Molise, Dept. EGSeI.
    2. Kim, David, 2007. "An East Asian currency union?: The empirical nature of macroeconomic shocks in East Asia," Journal of Asian Economics, Elsevier, vol. 18(6), pages 847-866, December.
    3. Centoni, Marco & Cubadda, Gianluca & Hecq, Alain, 2007. "Common shocks, common dynamics, and the international business cycle," Economic Modelling, Elsevier, vol. 24(1), pages 149-166, January.
    4. Tatiana Cesaroni, 2013. "Economic integration and industrial sector fluctuations: evidence from Italy," Economics Bulletin, AccessEcon, vol. 33(2), pages 944-958.
    5. repec:bla:intfin:v:20:y:2017:i:2:p:189-209 is not listed on IDEAS

    More about this item

    Keywords

    Business cycles; technological shocks; demand shocks;

    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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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