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Variation in the Effects of Aggregate Demand Shocks: Evidence and Implications across Industrial Countries
Author(s) -
Kandil Magda
Publication year - 2001
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2001.tb00356.x
Subject(s) - economics , aggregate demand , inflation (cosmology) , aggregate supply , wage , demand shock , business cycle , imperfect , aggregate (composite) , monetary economics , variable (mathematics) , perfect information , econometrics , macroeconomics , monetary policy , labour economics , microeconomics , mathematical analysis , linguistics , philosophy , physics , materials science , mathematics , composite material , theoretical physics
Over a sample of nineteen industrial countries, more variable aggregate demand and/or higher mean inflation attenuates (augments) the effect of aggregate demand shocks on real output growth (wage and price inflation) while having no effect on the response of the real wage to such shocks. In all countries examined, aggregate demand shocks are positively (negatively) correlated with nominal variables (real output). Among explanations of the business cycle based on shocks to aggregate demand, this evidence favors the new Keynesian sticky wage explanation over the sticky price and the new classical imperfect information explanations.