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Journal Article

Are Output Fluctuations Transitory?

John Y. Campbell and N. Gregory Mankiw
The Quarterly Journal of Economics
Vol. 102, No. 4 (Nov., 1987), pp. 857-880
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/1884285
Page Count: 24
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Are Output Fluctuations Transitory?
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Abstract

According to the conventional view of the business cycle, fluctuations in output represent temporary deviations from trend. The purpose of this paper is to question this conventional view. If fluctuations in output are dominated by temporary deviations from the natural rate of output, then an unexpected change in output today should not substantially change one's forecast of output in, say, five or ten years. Our examination of quarterly postwar United States data leads us to be skeptical about this implication. The data suggest that an unexpected change in real GNP of 1 percent should change one's forecast by over 1 percent over a long horizon.

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