This paper examines sources of cyclical movements in output,
inflation and the term structure of interest rates. It employs
a novel identification approach which uses the sign of the
cross correlation function in response to shocks to catalog
orthogonal disturbances. We find that demand shocks are the
dominant source output, inflation and term structure fluctuations
in six of the G-7 countries. Within the class of demand
disturbances, nominal shocks are dominant, but their importance ...
This paper examines sources of cyclical movements in output,
inflation and the term structure of interest rates. It employs
a novel identification approach which uses the sign of the
cross correlation function in response to shocks to catalog
orthogonal disturbances. We find that demand shocks are the
dominant source output, inflation and term structure fluctuations
in six of the G-7 countries. Within the class of demand
disturbances, nominal shocks are dominant, but their importance
declined after 1982. Furthermore, there are no significant
differences in the proportion of term structure variability
explained by different structural sources at different horizons.
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