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- Title
Sectoral vs. Aggregate Shocks in The Business Cycle.
- Authors
Long Jr., John B.; Plosser, Charles I.
- Abstract
The purpose of this paper is to look directly at the comovement in commodity outputs in an attempt to determine the extent to which it can be characterized as resulting from a common aggregate shock or from a more diverse set of independent disturbances. The data investigated suggests that the explanatory power of a common aggregate disturbance for industrial outputs is significant, but not very large for most industries. This result arises even though the factor analysis procedure attributes all correlations among industry innovations to a common factor. If any part of the observed comovement of industry output innovations is attributed to independent disaggregate influences like regionally specific shocks, then the implied explanatory power of an awe- gate factor is less than the estimated. These results are consistent with the existence of an aggregate disturbance, but one with limited explanatory power for sectoral industrial outputs. Thus, the evidence suggests that the aggregate shock model is a glass that is either half empty or half full depending on the point of view.
- Subjects
COMMERCIAL products; ECONOMIC activity; PRODUCTION (Economic theory); BUSINESS cycles; TECHNOLOGICAL innovations; MACROECONOMICS; INDUSTRIAL productivity
- Publication
American Economic Review, 1987, Vol 77, Issue 2, p333
- ISSN
0002-8282
- Publication type
Article