Assessing U.S. Aggregate Fluctuations Across Time and Frequencies

RePEc Short ID: plu38
ORCID iD: 0000-0001-6505-7807

Lubik, Thomas A.; Matthes, Christian; Verona, Fabio

Working Paper

Assessing U.S. Aggregate Fluctuations Across Time and Frequencies

Abstract: We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby inflation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We find that monetary policy shocks affect these key variables in a broadly similar manner across all frequency bands. Finally, we assess the ability of standard DSGE models to replicate these findings. While the models generally capture low-frequency movements via stochastic trends and business-cycle fluctuations through various frictions, they fail at capturing the medium-term cycle.

Keywords: Wavelets; bandpass filter; SVAR; sign restrictions; DSGE model;

JEL Classification: C32; C51; E32;