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Item Restricted An analysis of the sources of business fluctuations in Japan and the United States of America as compared to the Philippines(2002-04) Ferrera, Bernadette S.; Guiala, Maritess; Reside, Renato Jr.Background and Purpose. With the current state of the world economy and the many events that occurred which affected business transactions, a study on the sources of business fluctuations would really be beneficial to a country. Current events are beyond the control of business people. Thus, they cannot do anything about. They could only adjust their strategies in order to make things work. There are factors, though, that they can control and these are the economic variables that are endogenous to the business. By analyzing the sources of business distortions, leaders can avoid policies that can further I tinder growth for the company or the country. The paper aims to show which of the temporary and permanent shocks has a major impact on output and prices in Japan and the US. It also wants to know which of the two countries has a steeper aggregate supply curve. Lastly, the study would compare its results to prior studies and to the results obtained in a similar study done by Prof. Reside (2002) about the Philippines. Methodology. Data gathered for the two countries, Japan and USA, were obtained from the International Financial Statistics book. Unlike in previous studies where they used yearly data of GDP and unemployment, this study utilizes quarterly data and the consumer price index (CPI) instead of unemployment. CPI is used instead because this information is readily available among countries whereas only a few countries record their unemployment statistics. Traditional interpretation of macroeconomic fluctuations employs the aggregate supply- aggregate demand (AS-AD) model as the main tool. Along with this a bivariate VAR (vector autoregression) analysis setup similar to that of Bayoumi and Eichengreen is utilized to examine the impulse-response functions and variance decompositions of Japan and the USA. Results were then compared to traditional theories, interpretations and studies to check if they comply with them. Results. Outcome of the study showed that in the long-run output is basically driven by AS shocks and prices by AD shocks. Japan's impulse-response does not comply with the simple textbook model but in other aspects such as variance decompositions it exhibits a BQ model. USA, on the other hand, completely depicts the BQ model. It was also proven that an industrialized country such as the US could behave in the same manner as the Philippines. Conclusion. The: empirical study concludes from the analysis of various factors that both countries have steep AS curves but Japan has a steeper AS curve than the US and that the Philippines' sources of business fluctuations is almost the same as that of the US.