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Explaining the great moderation: it is not the shocks

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  • Domenico Giannone
  • Michèle Lenza
  • Lucrezia Reichlin

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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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/6413.

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Publication status: Forthcoming
Handle: RePEc:ulb:ulbeco:2013/6413

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  1. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers, Department of Economics, W. P. Carey School of Business, Arizona State University 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  2. 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.).
  3. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers, Federal Reserve Bank of Minneapolis 625, Federal Reserve Bank of Minneapolis.
  4. Smets, Frank & Wouters, Raf, 2007. "Shocks and frictions in US business cycles: a Bayesian DSGE approach," Working Paper Series, European Central Bank 0722, European Central Bank.
  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. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
  7. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
  8. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  9. Mario Forni & Domenico Giannone & Marco Lippi & Lucrezia Reichlin, 2008. "Opening the Black Box: Structural Factor Models with Large Cross-Sections," Working Papers ECARES, ULB -- Universite Libre de Bruxelles 2008_036, ULB -- Universite Libre de Bruxelles.
  10. Banbura, Marta & Giannone, Domenico & Reichlin, Lucrezia, 2007. "Bayesian VARs with Large Panels," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6326, C.E.P.R. Discussion Papers.
  11. Christine De Mol & Domenico Giannone & Lucrezia Reichlin, 2008. "Forecasting using a large number of predictors: is Bayesian shrinkage a valid alternative to principal components?," ULB Institutional Repository 2013/6411, ULB -- Universite Libre de Bruxelles.
  12. repec:ulb:ulbeco:2013/10125 is not listed on IDEAS
  13. Fabio Canova & Luca Gambetti & Evi Pappa, 2007. "The Structural Dynamics of Output Growth and Inflation: Some International Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(519), pages C167-C191, 03.
  14. Efrem Castelnuovo & Paolo Surico, 2006. "The price puzzle: fact or artefact?," Bank of England working papers, Bank of England 288, Bank of England.
  15. 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.
  16. Giannone, Domenico & Reichlin, Lucrezia, 2006. "Does information help recovering structural shocks from past observations?," Working Paper Series, European Central Bank 0632, European Central Bank.
  17. Efrem Castelnuovo, 2006. "Assessing Different Drivers of the GreatModeration in the U.S," "Marco Fanno" Working Papers, Dipartimento di Scienze Economiche "Marco Fanno" 0025, Dipartimento di Scienze Economiche "Marco Fanno".
  18. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1908, C.E.P.R. Discussion Papers.
  19. 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.
  20. 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.
  21. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2005. "Can financial innovation help to explain the reduced volatility of economic activity?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-54, Board of Governors of the Federal Reserve System (U.S.).
  22. 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.
  23. 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.
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