Historical Decomposition of Aggregate Demand and Supply Shocks in a Small Macro Model
- Resource Type
- research-article
- Authors
- Fackler, James S.; McMillin, W. Douglas
- Source
- Southern Economic Journal, 1998 Jan 01. 64(3), 648-664.
- Subject
- Supply shocks
Demand shocks
Aggregate supply shocks
Money multipliers
Interest rates
Aggregate demand
Price levels
Oil price shocks
Price shocks
Monetary base
- Language
- English
- ISSN
- 00384038
We estimate and analyze the impact of multiple aggregate demand and aggregate supply shocks in a small macroeconomic model of the economy. The analysis serves two purposes. First, we assess the relative importance of the various shocks in explaining the path of output over the past three decades. Second, we conduct counterfactual policy experiments which show the effects of alternative policies on key macro variables. We find that using the monetary policy tool (reserves or the base) such that constant money growth occurs would have produced superior economic results.