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Sources of the great moderation: A time-series analysis of GDP subsectors

  • Enders, Walter
  • Ma, Jun

Recent work finds evidence that the volatility of the U.S. economy fell dramatically around the first quarter of 1984. We trace the timing of this so-called "Great Moderation" across many subsectors of the economy in order to better understand its root cause. We find that the interest rate sensitive sectors generally experience a much earlier volatility decline than other large sectors of the economy. The changes in Federal Reserve stabilization policies that occurred during the early 1980s support the view that an improved monetary policy played an important role in stabilizing real economic activity. We find only mild evidence that "good luck" was important and little evidence to support the claim that improved inventory management was important.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 1 (January)
Pages: 67-79

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:1:p:67-79
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