The Nature Of Impulse Mechanısm: An Empırıcal Study For Turkey

Abstract

The fundamental purpose of this paper is to identify the nature of impulse mechanism, from which random shocks to general price and income levels are generated. In recent business cycle literature, it is generally accepted that business cycles are triggered by random productivity and technology shocks. However, this approach can not explain the current degree of volatility of business cycle fluctuations. Especially, New Keynesian economists emphasized the influence of demand shocks under the assumption of nominal and real rigidities and some other market imperfections. Therefore, it is convenient to identify whether the shocks to the general prices and national income are on demand or supply side. It is shown in the paper that between the first quarter of 1987 and the fourth quarter of 2003 in Turkey, shocks to national income are mostly composed of shocks to demand factors. On the other hand, the shocks to cost factors influence the shocks to general price level more frequently than shocks to demand factors.fluctuations; business cycle; macro economics; supply demand shocks