The great moderation under the microscope: decomposition of macroeconomic cycles in US and UK aggregate demand
AbstractIn this paper the relationship between the growth of real GDP components is explored in the frequency domain using both static and dynamic wavelet analysis. This analysis is carried out separately for the US and UK using quarterly data, and the results are found to be substantially different for the two countries. One of the key findings of this research is that the ‘great moderation’ shows up only at certain frequencies, and not in all components of real GDP. We use these results to explain why the incidence of the great moderation has been so patchy across GDP components, countries and time periods. This also explains why it has been so hard to detect periods of moderation (or other periods) reliably in the aggregate data. We argue this cannot be done without separating the GDP components into their frequency components over time. Our results show why: the predictions of traditional real business cycle theory often appear not to be upheld in the data.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 13/2011.
Length: 37 pages
Date of creation: 23 May 2011
Date of revision:
business cycles; growth cycles; discrete wavelet analysis; US real GDP; UK real GDP;
Find related papers by JEL classification:
- C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-BEC-2011-06-11 (Business Economics)
- NEP-CBA-2011-06-11 (Central Banking)
- NEP-MAC-2011-06-11 (Macroeconomics)
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.:
- Fang , Yiwei & Hasan, Iftekhar & Marton, Katherin, 2011. "Market reforms, legal changes and bank risk-taking – evidence from transition economies," Research Discussion Papers 7/2011, Bank of Finland.
- Andrea Colciago & Lorenza Rossi, 2011.
"Endogenous Market Structures and Labor Market Dynamics,"
Quaderni di Dipartimento
139, University of Pavia, Department of Economics and Quantitative Methods, revised Feb 2011.
- Colciago , Andrea & Rossi, Lorenza, 2011. "Endogenous market structures and labour market dynamics," Research Discussion Papers 12/2011, Bank of Finland.
- Colciago, Andrea & Rossi, Lorenza, 2011. "Endogenous Market Structures and Labor Market Dynamics," MPRA Paper 29311, University Library of Munich, Germany.
- Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin, 2011. "Bank efficiency in transition economies: recent evidence from South-Eastern Europe," Research Discussion Papers 5/2011, Bank of Finland.
- Paloviita, Maritta & Kinnunen, Helvi, 2011. "Real time analysis of euro area fiscal policies: adjustment to the crisis," Research Discussion Papers 21/2011, Bank of Finland.
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