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Volatility Accounting: A Production Perspective on Increased Economic Stability

  • Kevin J. Stiroh

This paper examines the declining volatility of U.S. output growth from a production perspective. At the aggregate level, increased output stability reflects decreased volatility in both labor productivity growth and hours growth, as well as a significant decline in the covariance. The decline in output volatility can also be traced to less volatile labor input and total factor productivity growth and the smaller covariance between them. At the industry level, the decline in volatility appears widespread, with about 80% of component industries showing smaller contributions to aggregate output volatility after 1984, although most of the aggregate decline reflects smaller covariances between industries. There is also strong evidence of a decline in the correlation between hours and labor productivity growth across industries. The paper concludes with a discussion of potential explanations. (JEL: E0, E3) (c) 2009 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 7 (2009)
Issue (Month): 4 (06)
Pages: 671-696

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Handle: RePEc:tpr:jeurec:v:7:y:2009:i:4:p:671-696
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