Ultimate Sources of Aggregate Variability

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What, ultimately, is different from quarter to quarter or year to year that accounts for the fact that macroeconomic variables change over these intervals? That is, which are the biggest ultimate sources, in terms we may say of tastes, technology, endowments, government policy, industrial organization, labor-management relations, speculative behavior, or the like, that change to cause this variability? There are a bewildering variety of claims in the literature for such ultimate sources. Far fewer efforts have been made to give a breakdown of the variance of macroeconomic aggregates by source. The two notable such breakdowns to date are by Bigou (1929) and Fair (1987). The nature of the evidence for such breakdowns is discussed here, and the possibility that a partial breakdown may be well-determined is put forward. An unsuccessful attempt is made to detect a component of macroeconomic fluctuations that is due to the weather.

Published: American Economic Review, vol. 77, no. 2 pp. 87-92 May 1987

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