HISTORICAL DECOMPOSITION OF AGGREGATE DEMAND AND SUPPLY SHOCKS IN A SMALL MACRO MODEL

We estimate and analyze the impact of multiple aggregate demand and ag gregate supply shocks in a small macroeconomic model of the economy. T he analysis serves two purposes. First, we assess the relative importa nce of the various shocks in explaining the path of output over the pa st three decades. Second, we conduct counterfactual policy experiments which show the effects of alternative policies on key macro variables . We find that using the monetary policy tool (reserves or the base) s uch that constant money growth occurs would have produced superior eco nomic results.