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We investigate the sources of changes in GDP volatility observed from 1966 to 2018. We develop a general equilibrium model and calibrate it to US data to characterize the contribution of micro level productivity shocks, inter-sectoral linkages and households' behavior to aggregate volatility. Our results show that changes in sectoral volatility played an important role in shaping GDP volatility and that asymmetries in the economy had a different impact on aggregate volatility over time. Moreover, we show that, despite an increase before the financial crisis of 2007, aggregate volatility has remained low until 2018.

We identify the longest expansion in U.S. history, a recession-free 16-year period from 1841 to 1856 that we call America's First Great Moderation. Using newer data on industrial production, we show that the record-long expansion was primarily driven by a boom in transportation-goods investment following the discovery of gold in California. Furthermore, the low volatility of industrial production and stock returns during the First Great Moderation, which occurred during a period without a U.S. central bank, is similar to that observed for the Second Great Moderation (1984–2007).

Most analyses of the U.S. Great Moderation have been based on structural VAR methods, and have consistently pointed towards good luck as the main explanation for the greater macroeconomic stability of recent years. Based on an estimated 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. First, the policy shift is suficient to generate decreases in the theoretical innovation variances for all series, and decreases in the variances of inflation and the output gap, without any need of sunspot shocks. With sunspots, the estimated model exhibits decreases in both variances and innovation variances for all series. Second, policy counterfactuals based on the theoretical structural VAR representations of the model under the two regimes fail to capture the truth, whereas impulse-response functions to a monetary policy shock exhibit little change across regimes. Since these results are in line with those found in the structural VARbased literature on the Great Moderation, our analysis suggests that existing VAR evidence is compatible with the 'good policy' explanation of the Great Moderation.

We use a Bayesian time-varying parameters structural VAR with stochastic volatility for GDP deflator inflation, real GDP growth, a 3-month nominal rate, and the rate of growth of M4 to investigate the underlying causes of the Great Moderation in the United Kingdom. Our evidence points towards a dominant role played by shocks in fostering the more stable macroeconomic environment of the last two decades. Results from counterfactual simulations, in particular, show that (1) the Great Inflation was due, to a dominant extent, to large demand non-policy shocks, and to a lesser extent–especially in 1973 and 1979–to supply shocks; (2) imposing the 1970s' monetary rule over the entire sample period would have made almost no difference in terms of inflation and output growth outcomes; and (3)mechanically 'bringing the Monetary Policy Committee vback in time' would only have had a limited impact on the Great Inflation episode, at the cost of lower output growth. These results are quite striking in the light of the more traditional, narrative approach, which suggests that the monetary policy regime is an important factor in explaining the Great Moderation in the United Kingdom. We discuss one interpretation which could explain both sets of results, based on the 'indeterminacy hypothesis' advocated, for the United States, by Clarida, Gali, and Gertler (2000) and Lubik and Schorfheide (2004).

The interferences among some financial, economic and monetary variables are checked as an indicator of economic performance in the long run and for the monetary policy applied between the Great Moderation (GM) of 1987-2001 and the Global Financial Crisis of 2007-2009. For achieving this target, some Granger causality tests are applied to GDP growth, credit growth, and lending interest of 36 countries of the EU and the OECD for the full sample of 1987-2012 and the sub-sample of 2002-2007. Results corroborate the interferences among these variables for the discretionary monetary policy applied immediately after the GM, within the "Ad Hoc Era" or "lax period", and independence when monetary policy was correctly applied and rules-based.

Most analyses of the US Great Moderation are based on structural VARs, and point toward good luck as the main explanation for the recent macroeconomic stability. Based on an estimated New-Keynesian model where the only source of change is the move from passive to active monetary policy, we show that (i) the theoretical VAR innovation variances for all series decrease across regimes; (ii) VAR-based counterfactuals assign a minor role to improved policy; and (iii) VAR impulse-response functions to a monetary shock exhibit little variation across regimes. Our analysis suggests that existing VAR evidence is also compatible with the "good policy" hypothesis. (JEL C32, C52, E13, E52, N12)