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This paper uses a simple VAR for the USA and Euro area to analyse the underlying shocks of the early millennium slowdown, i.e. supply, demand, monetary policy and oil price shocks. The results of two identification strategies are compared. One is based on traditional zero restrictions and, as an alternative, an identification scheme based on more recent sign restrictions is proposed. The main conclusion is that the recent slowdown is caused by a combination of several shocks: negative aggregate supply and aggregate spending shocks, the increase of oil prices in 1999, and restrictive monetary policy in 2000. These shocks are more pronounced in the USA than the Euro area. The results are somewhat different depending on the identification strategy. It is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks. Copyright © 2005 John Wiley & Sons, Ltd.