Uncovering Structural Change in U.S. Economy: The Analysis of Single Source of Error Beveridge-Nelson Decomposition (in Korean)

Kim and Nelson (1999a) and McConnell and Perez-Quiros (2000) initially identified a marked decline in the volatility of U.S. real GDP growth since 1984. This paper investigates the structural change in trend component and cyclical component in U.S. real GDP and the change in persistence of a shock to real GDP since 1984 by using the unobserved components model along with Single Source of Error Beveridge-Nelson decomposition. We find that the variance of the trend component increases while the variance of the cyclical component decreases and the persistence of a shock to real GDP increases since the mid-80s. We interpret that the increase in the persistence might be due to the disappearance of the post-recession ‘bounce-back effect’and due to the faster diffusion process of technology shock as the result of the spread of personal computer and internet. Our result indicates that the increase in the persistence of a shock to real GDP and the decline in output volatility characterize structural change in U.S. Economy since 1984 and suggests that improved monetary policy contributes to widespread moderation of GDP growth volatility and structural change in economy. In addition, this methodology might be useful for deeper and better understanding of the Korean business cycle.