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Explaining the Great Moderation: it is not the shocks

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  • Giannone, Domenico
  • Lenza, Michele
  • Reichlin, Lucrezia

Abstract

This paper shows that the explanation of the decline in the volatility of GDP growth since the mid-eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism. JEL Classification: E32, E37, C32, C53

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0865.

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Date of creation: Feb 2008
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Handle: RePEc:ecb:ecbwps:20080865

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Keywords: Great Moderation; Information; shocks;

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References

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  1. Timothy Cogley & Thomas J. Sargent, 2003. "Drifts and volatilities: monetary policies and outcomes in the post WWII U.S," Working Paper, Federal Reserve Bank of Atlanta 2003-25, Federal Reserve Bank of Atlanta.
  2. Domenico Giannone & Lucrezia Reichlin, 2006. "Does information help recovering structural shocks from past observations?," ULB Institutional Repository 2013/166169, ULB -- Universite Libre de Bruxelles.
  3. Forni, Mario & Giannone, Domenico & Lippi, Marco & Reichlin, Lucrezia, 2009. "Opening The Black Box: Structural Factor Models With Large Cross Sections," Econometric Theory, Cambridge University Press, vol. 25(05), pages 1319-1347, October.
  4. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  5. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper, Federal Reserve Bank of Atlanta 2004-14, Federal Reserve Bank of Atlanta.
  6. Benoît Mojon, 2007. "Monetary policy, output composition and the Great Moderation," Working Paper Series, Federal Reserve Bank of Chicago WP-07-07, Federal Reserve Bank of Chicago.
  7. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
  8. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report, Federal Reserve Bank of Minneapolis 328, Federal Reserve Bank of Minneapolis.
  9. Martha Banbura & Domenico Giannone & Lucrezia Reichlin, 2008. "Large Bayesian VARs," Working Papers ECARES 2008_033, ULB -- Universite Libre de Bruxelles.
  10. De Mol, Christine & Giannone, Domenico & Reichlin, Lucrezia, 2006. "Forecasting Using a Large Number of Predictors: Is Bayesian Regression a Valid Alternative to Principal Components?," CEPR Discussion Papers 5829, C.E.P.R. Discussion Papers.
  11. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 183-202.
  12. Jordi Gali & Luca Gambetti, 2008. "On the Sources of the Great Moderation," NBER Working Papers 14171, National Bureau of Economic Research, Inc.
  13. Efrem Castelnuovo & Paolo Surico, 2005. "The Price Puzzle: Fact or Artefact?," Macroeconomics, EconWPA 0505015, EconWPA, revised 15 Jun 2005.
  14. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(1), pages 147-180, February.
  15. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc.
  16. Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2002. "Recent U.S. macroeconomic stability: good policies, good practices or good luck?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 730, Board of Governors of the Federal Reserve System (U.S.).
  17. Fabio Canova & Luca Gambetti & Evi Pappa, 2006. "The structural dynamics of output growth and inflation: some international evidence," Economics Working Papers 971, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2006.
  18. Efrem Castelnuovo, 2006. "Assessing Different Drivers of the GreatModeration in the U.S," "Marco Fanno" Working Papers 0025, Dipartimento di Scienze Economiche "Marco Fanno".
  19. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  20. 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, Elsevier, vol. 53(1), pages 123-150, January.
  21. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 1-62.
  22. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  23. repec:ulb:ulbeco:2013/10125 is not listed on IDEAS
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