Variation in the effects of aggregate demand shocks: Evidence and implications across industrial countries

Over a sample of nineteen industrial countries, more variable aggregate dem and and/or higher mean inflation attenuates (augments) the effect of aggreg ate demand shacks on real output growth (wage and price inflation) while ha ving no effect on the response of the real wage to such shocks. In all coun tries examined, aggregate demand shocks are positively (negatively) correla ted with nominal variables (real output). Among explanations of the busines s cycle based on shacks to aggregate demand, this evidence favors the new K eynesian sticky wage explanation over the sticky price and the new classica l imperfect information explanations.