Are Output Fluctuations Transitory? (1987) by John Y. Campbell and N. Gregory Mankiw examines whether output fluctuations are temporary or persistent. The paper challenges the conventional view that business cycle fluctuations are temporary deviations from the natural rate of output. Using quarterly postwar U.S. data, the authors find that an unexpected 1% change in real GNP significantly affects long-term forecasts, suggesting that output shocks are persistent. They estimate ARIMA models and find that shocks to GNP are largely permanent. The paper also discusses the implications of these findings for macroeconomic theories, noting that persistent shocks challenge the natural rate hypothesis. The authors conclude that output fluctuations are not transitory, and that persistent shocks are a key feature of postwar data. The study highlights the importance of considering persistence in economic time series and suggests that traditional theories may need to be revised to account for this. The paper also discusses the limitations of standard tests for unit roots and proposes alternative measures of persistence. The authors find that the persistence of output fluctuations is robust to changes in the sample and data frequency. The study has important implications for understanding the dynamics of economic fluctuations and the behavior of macroeconomic variables.Are Output Fluctuations Transitory? (1987) by John Y. Campbell and N. Gregory Mankiw examines whether output fluctuations are temporary or persistent. The paper challenges the conventional view that business cycle fluctuations are temporary deviations from the natural rate of output. Using quarterly postwar U.S. data, the authors find that an unexpected 1% change in real GNP significantly affects long-term forecasts, suggesting that output shocks are persistent. They estimate ARIMA models and find that shocks to GNP are largely permanent. The paper also discusses the implications of these findings for macroeconomic theories, noting that persistent shocks challenge the natural rate hypothesis. The authors conclude that output fluctuations are not transitory, and that persistent shocks are a key feature of postwar data. The study highlights the importance of considering persistence in economic time series and suggests that traditional theories may need to be revised to account for this. The paper also discusses the limitations of standard tests for unit roots and proposes alternative measures of persistence. The authors find that the persistence of output fluctuations is robust to changes in the sample and data frequency. The study has important implications for understanding the dynamics of economic fluctuations and the behavior of macroeconomic variables.