This paper structurally interprets empirical results obtained with Blanchard and Quah (1989) decompositions of output into permanent and transitory shocks. This is done using assumptions about the qualitative responses of variables to structural shocks that are consistent with many different...

We find that shocks with no immediate effect on the price level explain essentially all short-run variance of aggregate output while shocks that immediately affect price explain virtually none of that variance. Similar findings are obtained with aggregate, sectoral and industry-level data, both...