An American Macroeconomic Picture. Supply and Demand Shocks in the Frequency Domain

Mario Forni, Luca Gambetti, Antonio Granese, Luca Sala and Stefano Soccorsi

No 18070, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide a few new empirical facts that any theoretical model of the US macroeconomy should feature in order to be consistent with the data. 1) There are two classes of shocks: demand and supply. Supply shocks have long-run effects on economic activity, demand shocks do not. 2) Both supply and demand shocks are important sources of business cycles fluctuations. 3) Supply shocks are the primary driver for consumption fluctuations, demand shocks for investment. 4) The demand shock is closely related to the credit spread, while the supply shock is essentially a news technology shock. The results are obtained using a novel frequency domain method to identify demand and supply shock.

Keywords: Business cycle; Frequency domain; Structural dynamic factor models (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2023-04
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