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Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?

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  • Shaghil Ahmed

    (Board of Governors of the Federal Reserve System)

  • Andrew Levin

    (Board of Governors of the Federal Reserve System)

  • Beth Anne Wilson

    (Board of Governors of the Federal Reserve System)

Abstract

The volatility of U.S. real GDP growth since 1984 has been markedlylowerthanoverthepreviousquartercentury.Weutilizefrequency-domain and VAR methods to distinguish among competing explanations for this reduction: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility, suggesting that good luck is the most likely explanation. Good practices and good policy appear to have played a more important role in explaining the post-1984 decline in the volatility of consumer price inflation. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Shaghil Ahmed & Andrew Levin & Beth Anne Wilson, 2004. "Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 824-832, August.
    • Handle: RePEc:tpr:restat:v:86:y:2004:i:3:p:824-832
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    References listed on IDEAS

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