Fundamental Economic Shocks and the Macroeconomy
Version of Record online: 6 NOV 2009
© 2009 The Ohio State University No claim to original US government works
Journal of Money, Credit and Banking
Volume 41, Issue 8, pages 1515–1555, December 2009
How to Cite
EVANS, C. L. and MARSHALL, D. A. (2009), Fundamental Economic Shocks and the Macroeconomy. Journal of Money, Credit and Banking, 41: 1515–1555. doi: 10.1111/j.1538-4616.2009.00271.x
- Issue online: 6 NOV 2009
- Version of Record online: 6 NOV 2009
- Received September 5, 2007; and accepted in revised form July 1, 2009.
- business cycles;
- impulse responses;
- vector autoregression
We ask how macroeconomic and financial variables respond to empirical measures of shocks to technology, labor supply, and monetary policy. These three shocks account for the preponderance of output, productivity, and price fluctuations. Only technology shocks have a permanent impact on economic activity. Labor inputs have little initial response to technology shocks. Monetary policy has a small response to technology shocks but “leans against the wind” in response to the more cyclical labor supply shock. This shock has the biggest impact on interest rates. Stock prices respond to all three shocks. Other empirical implications of our approach are discussed.