Did You Know that Monetary Disturbances Matter for Business Cycles Fluctuations? Evidence from the G-7 Countries

CEPR Discussion Paper Series No. 2028

Posted: 19 May 1999

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Fabio Canova

Bi norwegian business school

Date Written: November 1998

Abstract

This paper examines the question of which shock generates cyclical movements in output and inflation using an alternative approach. We find that in the G-7 countries output cycles are driven by different structural disturbances, that monetary disturbances play a significant role in at least four of the seven countries and that the dominant cause of output innovations within countries has changed after 1982. Inflation cycles are much more homogeneous across countries and are driven by a combination of supply and monetary disturbances. The disturbances we have identified explain large portions of output and inflation cycles but are not a major cause of fluctuations in financial and money markets. The theoretical and policy implications of the findings are discussed.

JEL Classification: C68, E32, F11

Suggested Citation

De Nicolo, Gianni and Canova, Fabio, Did You Know that Monetary Disturbances Matter for Business Cycles Fluctuations? Evidence from the G-7 Countries (November 1998). CEPR Discussion Paper Series No. 2028. Available at SSRN: https://ssrn.com/abstract=142795

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Fabio Canova

Bi norwegian business school ( email )

Nydalsveien 37
Oslo, 0484
Norway

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