The Dynamic Effects of Aggregate Demand and Supply Disturbance
نویسندگان
چکیده
We decompose the behavior of GNP and unemployment into the dynamic effects of two types of shocks: shocks that have a permanent effect on output and shocks that do not. We interpret the £rst as supply shocks, the second as demand shocks. We £nd that demand disturbances have a bump shaped effect on both output and unemployment; the effect peaks after a year and vanishes after two to three years. Up to a scaJe factor, the dynamic effect on unemployment of demand disturbances is a mirror image of that on output. The effect of supply disturbances on output increases steadily over time, to reach a peak after two years and a plateau after five years. "Favorabie" supply disturbances may initially increase unemployment. Thb is followed by a decline in unemployment, with a slow return over time to its original
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