Working Paper: NBER ID: w2169
Authors: John V. Campbell; N. Gregory Mankiw
Abstract: Fluctuations in real GNP have traditionally been viewed as transitory deviations from a deterministic time trend. The purpose of this paper is to review some of the recent developments that have led to a new view of output fluctuations and then to provide some additional evidence. Using post-war quarterly data, it is hard to reject the view that real GNP is as persistent as a random walk with drift. We also consider the hypothesis that the recent finding of persistence are due to the failure to distinguish the business cycle from other fluctuations in real GNP. We use the measured unemployment rate to decompose output fluctuations. We find no evidence for the view that business cycle fluctuations are more quickly trend-reverting.
Keywords: macroeconomics; output fluctuations; business cycles
JEL Codes: E32; E37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| findings (Y40) | need to reconsider the speed of trend reversion in output fluctuations (E32) |
| real GNP fluctuations (F44) | behaves like a random walk with drift (C22) |
| shocks to GNP (F69) | substantial permanent effect (H23) |
| negative one percent innovation in GNP (O39) | lowers its level by over one percent in the long run (E31) |
| output shocks (E39) | significant persistence (C41) |
| business cycle fluctuations (E32) | do not exhibit significantly different persistence than other fluctuations in output (E32) |
| persistence of output shocks (E32) | long-term effects (I12) |