Sources of Business Cycle Fluctuations

System estimates of potential output and the NAIRU

“…It is, for example, common to identify shocks that have permanent effects on real output as supply shocks and shocks that have temporary effects as demand shocks (cf. Blanchard and Quah (1989), Shapiro and Watson (1988), and Galí (1992)). In case of a transitory shock, a zero element in the corresponding position in the ( )…”

Infinite-Variance, Alpha-Stable Shocks in Monetary SVAR

“…One reason is that the critique proposed here might seem only to call for different estimators of A and the rest of the structural DGP that do not make use of a factorization of V* (e.g., Shapiro and Watson 1989). In fact, though, there exists no nonsingular A that transforms the innovations ε it into orthogonal shocks η it when one or more equations i has innovations with infinite variance, σ i 2 .…”

The Effects of Monetary Policy Shocks: Comparing Contemporaneous versus Long-Run Identifying Restrictions

“…No restrictions are placed on the contemporaneous relations among the variables. This procedure (hereafter referred to as LR) was introduced by Blanchard and Quah (1989) and Shapiro and Watson (1988) to identify shocks to aggregate demand and supply and has been used recently by Lastrapes and Selgin (1995) to identify money supply shocks and by Fackler and McMillin (1998) to identify monetary policy shocks. 4 The key restrictions used to identify monetary policy shocks in this approach are neutrality restrictions.…”