Title: Aggregate supply and demand disturbances, and the business cycle
Abstract: Using a variation of Lucas' model, I estimate the respective roles that aggregate supply and demand disturbances have had in causing business cycles in the U.S. Estimating a set of reduced-form solutions for the inflation rate and real output, the resulting bivariate error structure is decomposed into estimates for aggregate supply and demand disturbances. These estimates demonstrate that aggregate demand disturbances have dominated most business cycle episodes over the last twenty years. The 1981–1982 recession appears to have been caused entirely by aggregate demand disturbances since aggregate supply disturbances had a positive effect on output in the same period.
Publication Year: 1989
Publication Date: 1989-03-01
Language: en
Type: article
Indexed In: ['crossref']
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