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The Dynamic Effects of Aggregate Demand and Supply Disturbances

Olivier Jean Blanchard and Danny Quah
The American Economic Review
Vol. 79, No. 4 (Sep., 1989), pp. 655-673
Stable URL: http://www.jstor.org/stable/1827924
Page Count: 19
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The Dynamic Effects of Aggregate Demand and Supply Disturbances
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Abstract

We interpret fluctuations in GNP and unemployment as due to two types of disturbances: disturbances that have a permanent effect on output and disturbances that do not. We interpret the first as supply disturbances, the second as demand disturbances. Demand disturbances have a hump-shaped mirror-image effect on output and unemployment. The effect of supply disturbances on output increases steadily over time, peaking after two years and reaching a plateau after five years.

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