Financial Conditions for the US: Aggregate Supply or Aggregate Demand Shocks?

Alessia Paccagnini and Fabio Parla

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: It depends. We reply to this question by providing novel empirical evidence about the US economy. We identify the impact of financial high-frequency shocks on macroeconomic variables by estimating mixed- and common frequency VARs. The results from the mixed-frequency VAR show that economic output and inflation move in opposite directions in response to detrimental financial conditions, mimicking negative aggregate supply shocks. Oppositely, the results from the common-frequency VAR show that worsening financial conditions lead to a drop in output and inflation (and in the monetary policy rate), resembling negative aggregate demand shocks.

Keywords: Financial Conditions; High-Frequency; Shock Identification; Mixed-Frequency VAR (search for similar items in EconPapers)
JEL-codes: C32 C54 E44 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2023-02
New Economics Papers: this item is included in nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-10

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