The Two Greatest. Great Recession vs. Great Moderation
In: Banco de Espana Working Paper No. 1423
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In: Banco de Espana Working Paper No. 1423
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Working paper
In: CEPR Discussion Paper No. DP10092
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In: NBER working paper series 14171
"The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to (i) an increase in the volatility of hours relative to output, (ii) a shrinking contribution of non-technology shocks to output volatility, and (iii) a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with "good luck" explanations of the Great Moderation"--National Bureau of Economic Research web site
Most analyses of the U.S. Great Moderation have been based on VAR methods, and have consistently pointed toward good luck as the main explanation for the greater macroeconomic stability of recent years. Using data generated by a New-Keynesian model in which the only source of change is the move from passive to active monetary policy, we show that VARs may misinterpret good policy for good luck. In particular, we detect significant breaks in estimated VAR innovation variances, although in the data generating process the volatilities of the structural shocks are constant across policy regimes. Counterfactual simulations, structural and reduced-form, point toward the incorrect conclusion of good luck. Our results cast doubts on the existing notion that VAR evidence is inconsistent with the good policy explanation of the Great Moderation.
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In: Journal of economic dynamics & control, Band 46, S. 73-90
ISSN: 0165-1889
In: Bogazici Journal, Band 31, Heft 2
In: Emerging markets, finance and trade: EMFT, Band 50, Heft 1, S. 150-163
ISSN: 1558-0938
In: Journal of Monetary Economics, Band 56, Heft 2, S. 255-266
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In: FEDS Notes No. 2017-06-29 https://doi.org/10.17016/2380-7172.2011
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In this paper we quantitatively evaluate the hypothesis that the Great Moderation is partly the result of a less activist monetary policy. We simulate a New Keynesian model where the central bank can only observe a noisy estimate of the output gap and fnd that the less pronounced reaction of the Federal Reserve to output gap uctuations since 1979 can account for half of the reduction in the standard deviation of GDP associated with the Great Moderation. Our simulations are consistent with the empirically documented smaller magnitude and impact of interest rate shocks since the early 1980s.
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In: Journal of economic dynamics & control, Band 76, S. 152-170
ISSN: 0165-1889
In: FRB of Boston Working Paper No. 24-9
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In: NBER Working Paper No. w12708
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