Misinterpreting the dynamic effects of aggregate demand and supply disturbances

Cointegration models imply a natural decomposition of vector time series into permanent and transitory components. However, contrary to common belief, they do not trace out all possible such decompositions. This paper clarifies how a different, commonly-used decomposition - that due to Blanchard and Quah (American Economic Review, 1989, 79, 655–673) - differs substantively and conceptually from the decompositions given by cointegration calculations.