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What explains the Great Moderation in the US? A structural analysis

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Abstract

This paper investigates what has caused output and inflation volatility to fall in the US using a small scale structural model using Bayesian techniques and rolling samples. There are instabilities in the posterior of the parameters describing the private sector, the policy rule and the standard deviation of the shocks. Results are robust to the specification of the policy rule. Changes in the parameters describing the private sector are the largest, but those of the policy rule and the covariance matrix of the shocks explain the changes most.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/919.pdf
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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 919.

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Date of creation: Mar 2004
Date of revision: Dec 2007
Handle: RePEc:upf:upfgen:919

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

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Keywords: New Keynesian model; Bayesian methods; Monetary policy; Great Moderation;

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Citations

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Cited by:
  1. Jesús Fernández-Villaverde & Juan F Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," Levine's Bibliography 843644000000000057, UCLA Department of Economics.
  2. Chen, Shiu-Sheng & Chou, Yu-Hsi, 2012. "Rational expectations, changing monetary policy rules, and real exchange rate dynamics," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2824-2836.
  3. Peter N. Ireland, 2010. "A New Keynesian Perspective on the Great Recession," NBER Working Papers 16420, National Bureau of Economic Research, Inc.
  4. Eric Mayer & Johann Scharler, 2010. "Noisy Information, Interest Rate Shocks and the Great Moderation," Economics working papers 2010-07, Department of Economics, Johannes Kepler University Linz, Austria.
  5. Olaf Posch, 2006. "Explaining Output Volatility: the Case of Taxation," Quantitative Macroeconomics Working Papers 20608, Hamburg University, Department of Economics.
  6. Canova, Fabio & Gambetti, Luca, 2009. "Do expectations matter? The Great Moderation revisited," CEPR Discussion Papers 7597, C.E.P.R. Discussion Papers.
  7. Fabio Canova & Tobias Menz, 2009. "Japan's lost decade: Does money have a role?," Economics Working Papers 1240, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Miguel Casares & Antonio Moreno & Jesús Vázquez, 2009. "Wage Stickiness and Unemployment Fluctuations: An Alternative Approach," Faculty Working Papers 04/09, School of Economics and Business Administration, University of Navarra.
  9. George A. Kahn, 2012. "Estimated rules for monetary policy," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV.
  10. Alexandru Ciungu, 2012. "Inflation targeting, the zero lower bound and post-crisis monetary policy," Post-Print dumas-00801712, HAL.

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