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The Structural Dynamics of US Output and Inflation: What Explains the Changes?

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Author Info
Canova, Fabio
Gambetti, Luca
Pappa, Evi

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Abstract

We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labour productivity always increase in response to technology shocks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5879.

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Date of creation: Oct 2006
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Handle: RePEc:cpr:ceprdp:5879

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Related research
Keywords: persistence; structural time varying VARs; transmission; variability;

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pau Rabanal & Jordi Galí, 2005. "Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data?," IMF Working Papers 04/234, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 709-38, May. [Downloadable!] (restricted)
  3. Gali, J., 1996. "Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations?," Working Papers 96-28, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  4. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
    Other versions:
  5. Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  6. Dedola, Luca & Neri, Stefano, 2004. "What Does A Technology Shock Do? A VAR Analysis with Model-based Sign Restrictions," CEPR Discussion Papers 4537, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. G. Peersman & R. Straub, 2005. "Technology Shocks and Robust Sign Restrictions in a Euro Area SVAR," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/288, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  8. Jean Boivin & Marc Giannoni, 2002. "Has monetary policy become less powerful?," Staff Reports 144, Federal Reserve Bank of New York. [Downloadable!]
  9. Harald Uhlig, 2004. "Do Technology Shocks Lead to a Fall in Total Hours Worked?," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 361-371, 04/05. [Downloadable!] (restricted)
  10. Chang, Yongsung & Schorfheide, Frank, 2003. "Labor-supply shifts and economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1751-1768, November. [Downloadable!] (restricted)
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  11. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July. [Downloadable!] (restricted)
  12. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2003. "What Happens After a Technology Shock?," NBER Working Papers 9819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2001-1), pages 135-174. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luca Benati and Paolo Surico, 2007. "Vector Autoregression Analysis and the Great Moderation," Discussion Papers 18, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  2. Erdemlioglu, Deniz M & Xiao, Wei, 2008. "Indeterminate Equilibria in New Keynesian DSGE Model: An Application to the US Great Moderation," MPRA Paper 10322, University Library of Munich, Germany. [Downloadable!]
  3. Thomas A. Lubik & Paolo Surico, 2006. "The Lucas critique and the stability of empirical models," Working Paper 06-05, Federal Reserve Bank of Richmond. [Downloadable!]
  4. Giorgio Canarella & WenShwo Fang & Stephen M. Miller & Stephen K. Pollard, 2008. "Is the Great Moderation Ending? UK and US Evidence," Working papers 2008-24, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  5. Luca Benati & Haroon Mumtaz, 2007. "U.S. evolving macroeconomic dynamics - a structural investigation," Working Paper Series 746, European Central Bank. [Downloadable!]
  6. Paul Castillo & Carlos Montoro & Vicente Tuesta, 2005. "Inflation Premium and Oil Price Volatility," Macroeconomics 0512004, EconWPA, revised 31 Dec 2005. [Downloadable!]
    Other versions:
  7. Fabio Canova & Luca Gambetti, 2007. "Do expectations matter? The Great Moderation revisited," Economics Working Papers 1084, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2009. [Downloadable!]
  8. Efrem Castelnuovo & Paolo Surico, 2006. "The Price Puzzle: Fact or Artifact?," "Marco Fanno" Working Papers 0016, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
    Other versions:
  9. Canova, Fabio & Gambetti, Luca, 2006. "Structural Changes in the US Economy: Bad Luck or Bad Policy?," CEPR Discussion Papers 5457, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Francesco Nucci & Marianna Riggi, . "The Great Moderation and Changes in the Structure of Labor Compensation," Working Papers 124, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  11. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March. [Downloadable!]
    Other versions:
  12. Alejandro Justiniano & Northwestern University, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," Computing in Economics and Finance 2006 219, Society for Computational Economics. [Downloadable!]
  13. Luca Benati & Paolo Surico, 2008. "VAR analysis and the Great Moderation," Working Paper Series 866, European Central Bank. [Downloadable!]
  14. Marcelo Sánchez, 2009. "National prices and wage setting in a currency union," Working Paper Series 1058, European Central Bank. [Downloadable!]
  15. Luca Benati & Paolo Surico, 2006. "The Great Moderation and the ‘Bernanke Conjecture’," Computing in Economics and Finance 2006 158, Society for Computational Economics. [Downloadable!]
  16. Alejandro Justiniano & Giorgio E. Primiceri, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," NBER Working Papers 12022, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Dimitris Korobilis, 2009. "Assessing the Transmission of Monetary Policy Shocks Using Dynamic Factor Models," Working Papers 09-14, University of Strathclyde Business School, Department of Economics. [Downloadable!]
  18. Fabio Canova & Luca Gambetti, 2003. "Structural changes in the US economy: is there a role for monetary policy?," Economics Working Papers 918, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2008. [Downloadable!]
  19. Castelnuovo , Efrem & Greco , Luciano & Raggi, Davide, 2008. "Estimating regime-switching Taylor rules with trend inflation," Research Discussion Papers 20/2008, Bank of Finland. [Downloadable!]
  20. Efrem Castelnuovo, 2006. "Assessing Different Drivers of the GreatModeration in the U.S," "Marco Fanno" Working Papers 0025, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
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