Observing Shocks

51 Pages Posted: 15 May 2011 Last revised: 21 May 2011

See all articles by Pedro Garcia Duarte

Pedro Garcia Duarte

University of São Paulo (FEA-USP) - Department of Economics

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Date Written: May 10, 2011

Abstract

Shock is a term of art that pervades modern economics appearing in nearly a quarter of all journal articles in economics and in nearly half in macroeconomics. Surprisingly, its rise as an essential element in the vocabulary of economists can be dated only to the early 1970s. The paper traces the history of shocks in macroeconomics from Frisch and Slutzky in the 1920s and 1930s through real-business-cycle and DSGE models and to the use of shocks as generators of impulse-response functions, which are in turn used as data in matching estimators. The history is organized around the observability of shocks. As well as documenting a critical conceptual development in economics, the history of shocks provides a case study that illustrates, but also suggests the limitations of, the distinction drawn by the philosophers of science James Bogen and James Woodward between data and phenomena. The history of shocks shows that this distinction must be substantially relativized if it is to be at all plausible.

Keywords: shock, new classical macroeconomics, real-business-cycle model, Ragnar Frisch, Jan Tinbergen, Robert Lucas, data, phenomena, James Bogen, James Woodward, DSGE model, impulse-response function

JEL Classification: B22, B23, B41

Suggested Citation

Garcia Duarte, Pedro and Hoover, Kevin D., Observing Shocks (May 10, 2011). CHOPE Working Paper No. 2011-09; Economic Research Initiatives at Duke (ERID) Working Paper. Available at SSRN: https://ssrn.com/abstract=1840705 or http://dx.doi.org/10.2139/ssrn.1840705

Pedro Garcia Duarte (Contact Author)

University of São Paulo (FEA-USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto, 908
Departamento de Economia
Sao Paulo, SP, 05508-010
Brazil

HOME PAGE: http://www.usp.br/feaecon/perfil.php?u=110

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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