Interaction between Supply and Demand Shocks in Production and Employment

A major aim of recent empirical modelling of the business cycle isto identify the relative importance of aggregate supply and demandshocks. Supply or technology shocks are associated with permanent(structural) effects on economic activity whereas demand shocks arerelated to temporary (cyclical) effects. Most studies in this veinuse multivariate VAR-models or the common trends-cointegrationapproach in order to disentangle supply and demand shocks. As analternative, this paper uses the methodology of unobserved (orstructural) components time series models as set out in Harvey(1989) for identific... Mehr ...