EconPapers    
Economics at your fingertips  
 

Aggregate supply and demand shocks: a natural rate approach

Arturo Estrella

No 9739, Research Paper from Federal Reserve Bank of New York

Abstract: There is wide agreement that the dynamics of inflation and unemployment are influenced by supply and demand shocks, such as oil price and monetary policy surprises, and by systematic factors such as overlapping contracts. There is less agreement about the relative importance of those determinants. The natural rate model of this paper uses a structural VAR approach to decompose movements in U.S. postwar unemployment and inflation into three orthogonal components. These components correspond, respectively, to systematic or predictable changes, supply shocks, and demand shocks. Orthogonality facilitates the detailed analysis of the individual components. Specifically, supply and demand shocks are shown to be correlated with observable variables in sensible ways, and they are used to analyze and interpret inflation-unemployment tradeoffs and postwar business cycles. In addition, the systematic component of inflation, which is equivalent to a NAIRU gap, is shown to predict changes in inflation reasonably well over a one-year horizon.

Keywords: Supply and demand; Unemployment; Inflation (Finance); Business cycles (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/rese ... rch_papers/9739.html (text/html)
https://www.newyorkfed.org/medialibrary/media/rese ... arch_papers/9739.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednrp:9739

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Paper from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Amy Farber ().

 
Page updated 2019-12-13
Handle: RePEc:fip:fednrp:9739