A1621
Title: Financial conditions for the US: Aggregate supply or aggregate demand shocks?
Authors: Alessia Paccagnini - University College Dublin (Ireland) [presenting]
Fabio Parla - University of Palermo (Italy)
Abstract: It depends. This question is answered by providing novel empirical evidence about the US economy. The impact of financial high-frequency shocks is identified on macroeconomic variables by estimating mixed- and common-frequency VARs. The results from the mixed-frequency VAR show that economic output and inflation move in opposite directions in response to detrimental financial conditions, mimicking negative aggregate supply shocks. Oppositely, the results from the common-frequency VAR show that worsening financial conditions lead to a drop in output and inflation (and in the monetary policy rate), resembling negative aggregate demand shocks.
