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Most of France, Germany, and the United Kingdom's transitory shocks are country-specific.
As this paper provides evidence suggesting that droughts are not exogenous and transitory shocks, it is possible that the more muted results in this paper compared to those found in past work reflect the result of adaptive decision-making by households.
However, in times of recession the transitory shocks predominate, and monetary and other demand-oriented models are pertinent.
Differencing does not eliminate the effect of correlated transitory shocks, however, and these are another potential source of bias.
In the presence of correlated transitory shocks or simultaneity, an instrumental variable (IV) approach [30, 52, 53] can be used to consistently estimate parameters.
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First, the Netherlands experienced a transitory shock in external demand.
We find that emerging market business cycles appear to be driven by large shocks to trend income combined with relatively small transitory shocks that co-vary with the interest rate.
In particular, this work considers transitory economic shocks among the general pool of workers while I consider an economic shock experienced during the school-to-work transition for new labor market entrants.
Nevertheless, in the presence of transitory technology shocks, optimal short term deviations from this positive long run inflation are negligible.
In their seminal paper, Brückner and Ciccone (2011) document that a significant effect of democratic change may be triggered by negative transitory economic shocks, and that rainfall can open a democratic window of opportunity in sub-Saharan Africa (SSA).
Economic growth in turn raises per capita income and protects households from transitory negative shocks, while investment in homes (among other things) helps protect them from climate change.
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