Observing Shocks

Pedro Garcia Duarte and Kevin D. Hoover
Publication Number: 

Shock is a term of art that pervades modern economics appearing in nearly a quarter of all 

journal articles in economics and in nearly half in macroeconomics.  Surprisingly, its rise 

as an essential element in the vocabulary of economists can be dated only to the early 

1970s.  The paper traces the history of shocks in macroeconomics from Frisch and 

Slutzky in the 1920s and 1930s through real-business-cycle and DSGE models and to the 

use of shocks as generators of impulse-response functions, which are in turn used as data 

in matching estimators.  The history is organized around the observability of shocks.  As

well as documenting a critical conceptual development in economics, the history of 

shocks provides a case study that illustrates, but also suggests the limitations of, the 

distinction drawn by the philosophers of science James Bogen and James Woodward 

between data and phenomena.  The history of shocks shows that this distinction must be 

substantially relativized if it is to be at all plausible.