Demand and Supply Shocks in the IS-LM Model: Empirical Findings for Five Countries / Nachfrage- und Angebotsschocks im IS-LM Modell: Empirische Ergebnisse für fünf Länder

Jordan Thomas J. and Carlos Lenz
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Jordan Thomas J.: Schweizerische Nationalbank, Volkswirtschaftliche Studien, Börsenstraße 15, CH-8022 Zürich

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 1999, vol. 218, issue 5-6, 725-744

Abstract: This paper analyzes whether the short-run behavior of output, the interest rate, and the price level in the U.S., Germany, France, the U.K., and Italy follows the qualitative predictions of the IS-LM model augmented by a long-run aggregate supply schedule. The use of the structural vector auto-regression methodology allows to identify three different shocks under the long-run neutrality assumptions implied by the vertical aggregate supply curve. An impulse response analysis shows that, for all countries considered, the dynamic adjustment of the variables in response to supply, monetary, and fiscal shocks is consistent with the considered version of the IS-LM model. In addition, the variance decompositions show that demand shocks explain a substantial part of output fluctuations at short horizons. This result stands in contrast to simple Real Business Cycle models which explain business cycles exclusively in terms of productivity shocks.

Keywords: Structural vector autoregression; demand and supply shocks; business cycles; Strukturelle Vektorautoregression; Nachfrage- und Angebotsschocks; Konjunkturzyklen (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:218:y:1999:i:5-6:p:725-744

DOI: 10.1515/jbnst-1999-5-612

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