Did You Know that Monetary Disturbances Matter for Business Cycles Fluctuations? Evidence from the G-7 Countries

Fabio Canova () and Gianni de Nicolo

No 2028, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the question of which shock generates cyclical movements in output and inflation using an alternative approach. We find that in the G-7 countries output cycles are driven by different structural disturbances, that monetary disturbances play a significant role in at least four of the seven countries and that the dominant cause of output innovations within countries has changed after 1982. Inflation cycles are much more homogeneous across countries and are driven by a combination of supply and monetary disturbances. The disturbances we have identified explain large portions of output and inflation cycles, but are not a major cause of fluctuations in financial and money markets. The theoretical and policy implications of the findings are discussed.

Keywords: Business Cycles; dynamic correlations; monetary models; structural shocks (search for similar items in EconPapers)
JEL-codes: C68 E32 F11 (search for similar items in EconPapers)
Date: 1998-11

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