Permanent and Transitory Shocks in Real Output : Estimates from Nineteenth Century and Postwar Economies

This paper re-examines Blanchard and Quah's (1989) aggregate supply/demand model interpretation of output shocks using data from ten countries. Although postwar data support their interpretation, the model is not supported by nineteenth century data. In the postwar period, permanent output shocks cause the price level to move in the opposite direction (like supply shocks) and temporary output shocks cause the price level to move in the same direction (like demand shocks). But with pre-World War I data, permanent output shocks typically cause price level movements in the same direction. The results are systematic and cannot be explained by data problems