Understanding the importance of permanent and transitory shocks at business cycle horizons for the UK

Narayan, Paresh Kumar 2008, Understanding the importance of permanent and transitory shocks at business cycle horizons for the UK, Physica A : statistical mechanics and its applications, vol. 387, no. 12, pp. 2879-2888.

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Title Understanding the importance of permanent and transitory shocks at business cycle horizons for the UK
Author(s) Narayan, Paresh Kumar
Journal name Physica A : statistical mechanics and its applications
Volume number 387
Issue number 12
Start page 2879
End page 2888
Publisher Elsevier Science
Place of publication Amsterdam, The Netherlands
Publication date 2008-05-01
ISSN 0378-4371
1873-2119
Keyword(s) business cycles
permanent and transitory shocks
Summary The goal of this paper is to examine the relative importance of permanent and transitory shocks in explaining variations in macroeconomic aggregates for the UK at business cycle horizons. Using the common trend–common cycle restrictions, we estimate a variance decomposition of shocks, and find that over short horizons the bulk of the variations in income and consumption were due to permanent shocks while transitory shocks explain the bulk of the variations in investment. Our findings for income and consumption are consistent with real business cycle models which emphasize the role of aggregate supply shocks, while our findings for investment are consistent with the Keynesian school of thought, which emphasizes the role of aggregate demand shocks in explaining business cycles.
Language eng
Field of Research 140305 Time-Series Analysis
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2008
Copyright notice ©2008, Elsevier B.V.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30017306

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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