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Volatility Accounting: A Production Perspective on Increased Economic Stability

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  • Kevin J. Stiroh

Abstract

This paper examines the declining volatility of U.S. output growth from a production perspective. At the aggregate level, increased output stability reflects decreased volatility in both labor productivity growth and hours growth, as well as a significant decline in the covariance. The decline in output volatility can also be traced to less volatile labor input and total factor productivity growth and the smaller covariance between them. At the industry level, the decline in volatility appears widespread, with about 80% of component industries showing smaller contributions to aggregate output volatility after 1984, although most of the aggregate decline reflects smaller covariances between industries. There is also strong evidence of a decline in the correlation between hours and labor productivity growth across industries. The paper concludes with a discussion of potential explanations. (JEL: E0, E3) (c) 2009 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 7 (2009)
Issue (Month): 4 (06)
Pages: 671-696

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Handle: RePEc:tpr:jeurec:v:7:y:2009:i:4:p:671-696

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Citations

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Cited by:
  1. Chun, Hyunbae & Kim, Jung-Wook, 2010. "Declining output growth volatility: A sectoral decomposition," Economics Letters, Elsevier, vol. 106(3), pages 151-153, March.
  2. Jordi Gali & Luca Gambetti, 2008. "On the Sources of the Great Moderation," NBER Working Papers 14171, National Bureau of Economic Research, Inc.
  3. Posch, Olaf, 2011. "Explaining output volatility: The case of taxation," Journal of Public Economics, Elsevier, vol. 95(11), pages 1589-1606.
  4. Douglas Sutherland & Peter Hoeller, 2013. "Growth-promoting Policies and Macroeconomic Stability," OECD Economics Department Working Papers 1091, OECD Publishing.
  5. Christian Calmès & Raymond Théoret, 2008. "Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?," RePAd Working Paper Series UQO-DSA-wp042008, Département des sciences administratives, UQO.
  6. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 123-150, January.
  7. Mary C. Daly & John G. Fernald & Òscar Jordà & Fernanda Nechio, 2013. "Okun’s macroscope and the changing cyclicality of underlying margins of adjustment," Working Paper Series 2013-32, Federal Reserve Bank of San Francisco.
  8. Cantore, C. & Ferroni, F. & León-Ledesma, M A., 2011. "Interpreting the Hours-Technology time-varying relationship," Working papers 351, Banque de France.
  9. repec:dgr:uvatin:2009063 is not listed on IDEAS
  10. William Hawkins, 2012. "Wage Determination and Labor Market Volatility under Mismatch," 2012 Meeting Papers 797, Society for Economic Dynamics.
  11. Ko, Jun-Hyung & Murase, Koichi, 2013. "Great Moderation in the Japanese economy," Japan and the World Economy, Elsevier, vol. 27(C), pages 10-24.
  12. Zied Ftiti, 2010. "Stabilité-croissance et performance économique : Quelle relation selon une revue de la littérature ?," Working Papers 1026, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  13. R. Jason Faberman, 2008. "Job flows, jobless recoveries, and the Great Moderation," Working Papers 08-11, Federal Reserve Bank of Philadelphia.
  14. Francesco Nucci & Marianna Riggi, 2011. "Performance pay and shifts in macroeconomic correlations," Temi di discussione (Economic working papers) 800, Bank of Italy, Economic Research and International Relations Area.

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