Shocks And Crashes

Three shocks, distinguished by whether their effects are permanent or transitory, are identified to characterize the post-war dynamics of aggregate consumer spending, labor earnings, and household wealth. The first shock accounts for virtually all of the variation in consumption and has effects akin to a permanent total factor productivity shock in canonical frictionless macroeconomic models. The second shock underlies the bulk of fluctuations in labor income, accounting for 76% of its variation. This shock permanently reallocates rewards between shareholders and workers but leaves consumption unaffected.

Provided by: National Bureau of Economic Research Topic: CXO Date Added: Apr 2011 Format: PDF

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