Working Paper: NBER ID: w4698
Authors: John H. Cochrane
Abstract: What are the shocks that drive economic fluctuations? I examine technology and money shocks in some detail, and briefly review the evidence on oil price and credit shocks. I conclude that none of these popular candidates accounts for the bulk of economic fluctuations. I then examine whether 'consumption shocks,' news that agents see but we do not, can account for fluctuations. I find that it may be possible to construct models with this feature, though it is more difficult than is commonly realized. If this view is correct, we will forever remain ignorant of the fundamental causes of economic fluctuations.
Keywords: economic fluctuations; shocks; technology shocks; money shocks; consumption shocks
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technology shocks (O33) | Output variations (Y10) |
| Money shocks (E39) | Output variations (Y10) |
| Monetary policy shocks (E39) | Output variations (Y10) |
| Consumption shocks (E21) | Output fluctuations (E39) |
| Shocks (E32) | Observable variables (C29) |