Spontaneous Volatility of Output and Investment
Working Paper 3144
DOI 10.3386/w3144
Issue Date
Spontaneous shifts in output originating within the business sector are an important factor in aggregate fluctuations. This paper develops a simple two-component decomposition of the movement of real GNP. One component is the path that GNP would have followed in order to deliver the volume of goods and services actually taken by consumers, government, and the rest of the world. The second component, noise, is the residual between actual GNP and the theoretical calculation. The two components are of roughly the same size, but noise has more of its power at higher frequencies.