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The Role Of Sectoral Shifts In The Decline Of Real Gdp Volatility

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  • Burren, Daniel
  • Neusser, Klaus

Abstract

U.S. production has shifted from goods-producing to service-producing industries. We assess whether this shift contributed to the decline in U.S. output volatility over the period 1949–2005 and provide an estimate of its relative importance. Growth rates of GDP by industry are analyzed in a seemingly unrelated multivariate autoregression framework with time-varying innovation covariance matrices. These changing unobserved covariance matrices are modeled as a Wishart autoregressive process of order one, which results in a nonlinear state-space system. The particle filter is used to obtain estimates of the innovation covariance matrix at each point in time. Several counterfactual experiments make it possible to apportion the decline in output volatility between the shift in the sectoral composition and changes in innovations. Our main finding is that the shift into the service sector can explain about 30% of the decline in GDP's volatility, despite the fact that some sectors became even more volatile. This result is robust across a wide variety of alternative specifications.

Suggested Citation

  • Burren, Daniel & Neusser, Klaus, 2013. "The Role Of Sectoral Shifts In The Decline Of Real Gdp Volatility," Macroeconomic Dynamics, Cambridge University Press, vol. 17(3), pages 477-500, April.
    • Handle: RePEc:cup:macdyn:v:17:y:2013:i:03:p:477-500_00
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    Cited by:

    1. Everaert, Gerdie & Iseringhausen, Martin, 2018. "Measuring the international dimension of output volatility," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 20-39.
    2. N. V. Suvorov & S. V. Treshchina & Yu. V. Beletskii, 2020. "Design of Methods for Long-Term Forecasting of Development Trends in the Russian Economy (Methodology and Model Toolkit)," Studies on Russian Economic Development, Springer, vol. 31(6), pages 636-646, November.
    3. Merlino, Luca Paolo, 2016. "Efficient Sorting In Frictional Labor Markets With Two-Sided Heterogeneity," Macroeconomic Dynamics, Cambridge University Press, vol. 20(1), pages 95-119, January.

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