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The dynamic effects of aggregate supply and demand shocks in the Mexican economy

Author

Listed:
  • Ivan Mendieta-Muñoz

    (Department of Economics, University of Utah)

Abstract

This paper studies if the supply shock derived from the Blanchard-Quah methodology contains a demand driven component in the Mexican economy during the period 1981Q1-2016Q2. We find that supply shocks are not contemporaneously correlated with demand shocks, so that 1) the anomaly in the inflation dynamics to a supply shock is not present if the standard Blanchard-Quah restrictions are employed; and 2) supply (demand) shocks represent the primary source of the long-run variation in output (inflation). The results show that it is possible to identify uncorrelated supply and demand shocks for the Mexican economy using the standard restrictions imposed by the Blanchard-Quah approach.

Suggested Citation

  • Ivan Mendieta-Muñoz, 2018. "The dynamic effects of aggregate supply and demand shocks in the Mexican economy," Economics Bulletin, AccessEcon, vol. 38(1), pages 41-51.
    • Handle: RePEc:ebl:ecbull:eb-17-00655
    as

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    References listed on IDEAS

    as
    1. Carolina Pagliacci, 2019. "Are we ignoring supply shocks? A proposal for monitoring cyclical fluctuations," Empirical Economics, Springer, vol. 56(2), pages 445-467, February.
    2. Cover, James Peery & Enders, Walter & Hueng, C. James, 2006. "Using the Aggregate Demand-Aggregate Supply Model to Identify Structural Demand-Side and Supply-Side Shocks: Results Using a Bivariate VAR," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 777-790, April.
    3. Bashar, Omar H.M.N., 2011. "On the permanent effect of an aggregate demand shock: Evidence from the G-7 countries," Economic Modelling, Elsevier, vol. 28(3), pages 1374-1382, May.
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    Cited by:

    1. Li, Mengheng & Mendieta-Muñoz, Ivan, 2024. "Dynamic hysteresis effects," Journal of Economic Dynamics and Control, Elsevier, vol. 163(C).

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    More about this item

    Keywords

    Structural VAR; supply shocks; demand shocks; Blanchard-Quah decomposition; Mexican economy.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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