Nachfrage- und Angebotsschocks in der Europäischen Union / Demand and Supply Shocks in the European Union: Empirische Ergebnisse und methodische Erläuterungen / Empirical Results and Methodological Comments

The analysis of economic shocks and their effects on the economic process is the main purpose of this paper. Using a familiar aggregate supply and demand model we distinguish between supply and demand shocks and their influence on both gross domestic product (GDP) and the price level measured by the GDP deflator. A common method to investigate the dynamics of vectorautoregressive (VAR) models is the constrained impulse response analysis. The hypothesis of transitory effects of demand shocks on output is used to restrict the impulse response functions. This method is confronted with a constrained VAR model containing the vertical supply function as a constraint which is achieved by restricting the coefficients appropriately. The restricted VAR coefficients are computed by using a feasible generalized least squares estimator. The empirical research is done for 18 countries, the European Union, and the OECD. The most important result is that, in contrast to the dynamics of the restricted impulse response functions, the dynamics of the constrained VAR models coincides with the theoretical expectations. It is noteworthy, however, that tests of the coefficient restrictions with a Wald test in the VAR model lead to a rejection of the null hypothesis for several countries. Moreover, the stability of the constrained VAR models cannot be guaranteed in every case. As a further essential contribution all feasible impulse response functions satisfying a given set of zero restrictions are characterized. Even in the special case of a two variable model the solution is not unique.