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-run output dynamics, challenging the macroeconomic literature that relegates its effects to the short run. We apply SVAR modelling to US quarterly data (1954–2020) in order to identify shocks and compute multipliers associated with demand and its autonomous components (i.e. exports, government expenditure, credit-financed consumption, and private residential investment) while controlling for monetary policy. Our findings suggest that: (i) demand produces long-lasting effects on GDP with multipliers greater than one; (ii) multipliers are higher for credit-financed consumption and private residential investment, followed by government expenditure and exports; (iii) monetary policy affects output through residential investment. Our results support those theories suggesting that supply accommodates to demand by varying installed capacity and that monetary policy is ineffective in stimulating economic activity due to the low responsiveness of GDP to interest rate shocks.