On the relative importance of demand and supply shocks: a panel VAR study for US states

Edward M. Feasel, Padmapriya Gollapudi and Daiki Kumazawa

Applied Economics Letters, 2017, vol. 24, issue 18, 1340-1345

Abstract: This article is a panel VAR study of demand and supply shocks in the USA using state-level data where structural shocks are decomposed into state idiosyncratic and common components. Decomposition suggests that in all instances, idiosyncratic state shocks rather than common shocks have larger impact and explain most variation in both the state-level unemployment rate and real gross state product. Further, demand shocks are the primary driving force in unemployment rate fluctuations, while both demand and supply are important in output movements to varying degree of impact and importance depending on the use of quarterly or annual data.

Date: 2017
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DOI: 10.1080/13504851.2016.1276266

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