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On the sources of the Great Moderation

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  • Jordi Galí

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  • Luca Gambetti

Abstract

The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. That evidence points to structural change, as opposed to just good luck, as an explanation for the Great Moderation. We use a simple macro model to suggest some of the immediate sources which are likely to be behind the observed changes.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1041.

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Date of creation: Sep 2006
Date of revision: Jun 2007
Handle: RePEc:upf:upfgen:1041

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Web page: http://www.econ.upf.edu/

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Keywords: Great Moderation; structural VAR; technology shocks; monetary policy rules; labor hoarding;

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