This paper challenges the claim of a recent authoritative study that identifies a single shock as the main driver of business cycle fluctuations. We argue that the VAR used in that study is informationally insufficient, i.e., it is unable to recover the true structural shock driving business cycle fluctuations. Using a large-dimensional Structural Dynamic Factor model, we present an alternative view of US business cycles, more in line with classical AD-AS theory. This underscores the multivariate nature of cycles and challenges the existence of a Main Business-Cycle shock.
Granese, A.. "Two Main Business Cycle Shocks are Better than One" Working paper, RECENT WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi, 2024.
Two Main Business Cycle Shocks are Better than One
Granese,A.
2024
Abstract
This paper challenges the claim of a recent authoritative study that identifies a single shock as the main driver of business cycle fluctuations. We argue that the VAR used in that study is informationally insufficient, i.e., it is unable to recover the true structural shock driving business cycle fluctuations. Using a large-dimensional Structural Dynamic Factor model, we present an alternative view of US business cycles, more in line with classical AD-AS theory. This underscores the multivariate nature of cycles and challenges the existence of a Main Business-Cycle shock.File | Dimensione | Formato | |
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