Measuring Real and Nominal Macroeconomic Shocks and their International Transmission under Different Monetary Systems

A fundamental distinction can be drawn between real and nominal macroeconomic shocks. The aim of this paper is to identify and measure these two types of shocks, and to estimate the response of output growth and inflation to them. A VAR methodology that incorporates long‐run identifying restrictions is used. The analysis is carried out for the US and the UK using annual data since 1869 and quarterly post‐war data. The transmission of these shocks between the two countries under different international monetary systems is compared.