Output determination and autonomous demand multipliers: An empirical investigation for the US economy

This paper aims to assess whether shocks in demand and its components can affect short- and long-runoutput dynamics, challenging the macroeconomic literature that relegates its effects to the short run. Weapply SVAR modelling to US quarterly data (1954–2020) in order to identify shocks and compute multipliersassociated with demand and its autonomous components (i.e. exports, government expenditure, credit-financedconsumption, and private residential investment) while controlling for monetary policy. Our findings suggestthat: (i) demand produces long-lasting effects on GDP with multipliers greater than one; (ii) multipliersare higher for credit-financed consumption and private residential investment, followed by governmentexpenditure and exports; (iii) monetary policy affects output through residential investment. Our resultssupport those theories suggesting that supply accommodates to demand by varying installed capacity andthat monetary policy is ineffective in stimulating economic activity due to the low responsiveness of GDP tointerest rate shocks.