Persistence profiles and business cycle fluctuations in a disaggregated model of U.K. output growth

This paper builds on recent work dealing with the measurement of the long-run response of output to different types of shocks at a multisectoral level. The paper re-examines the issues that surround the identification of shocks to particular sectors in a multisectoral model, and proposes “persistence profiles” of shocks as a method of carrying out impulse response analysis in multivariate systems. It is shown that, unlike the impulse response analysis familiar in the literature, the proposed “persistence profiles” are robust to the alternative parameterization of the underlying moving average representation. The analysis is applied to a simple multisectoral model of U.K. output growths, disaggregated by eight industrial sectors.