Identifying aggregate supply and demand shocks in small open economies: empirical evidence from African countries

A. H. Ahmad, Eric J. Pentecost

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Abstract

This paper uses a tri-variate structural VAR with a long-run identification scheme, akin to the Blanchard and Quah method, to identify external and domestic supply and demand shocks in 22 African countries between 1980 and 2005. Domestic supply shocks are found to be the most important factor contributing over 70% to output fluctuations in these countries, with external shocks playing a relatively minor role. A partial correlation analysis between the identified shocks and a measure of the fiscal policies of the countries revealed that the fiscal policies pursued by most of the countries during the period are counter-cyclical.
Original languageEnglish
Article number23
Pages (from-to)272-291
Number of pages20
JournalInternational Review of Economics and Finance
Volume21
Issue number1
DOIs
Publication statusPublished - Jan 2012

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