VOX  CEPR Policy Portal

A long-standing question in macroeconomic research pertains to the causes of business cycle fluctuations in macroeconomic variables like output and investment. This column uses survey data from the German manufacturing sector to show that aggregate variations in investment and output are mainly due to aggregate demand shocks. These shocks resemble swings in business and consumer sentiment but, for the most part, have no obvious relation to macroeconomic policy.