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Great Volatility and Great Moderation

Author

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  • Jakob Grazzini
  • Domenico Massaro

Abstract

We investigate the sources of the great changes in GDP volatility observed from 1966 to 2000. We develop a general equilibrium model and calibrate it to US data in order to characterize the contribution of micro level productivity shocks, inter-sectoral linkages and households' behavior to aggregate volatility. Our results show that changes in sectoral volatility played an important role in shaping volatility at the aggregate level. Moreover, asymmetries in the economic structure sometimes had an amplifying, and other times a dampening effect on aggregate volatility. We show that the different impact depends on the time-varying correlation between sectoral volatilities and the relative importance of specific sectors in the economy.

Suggested Citation

  • Jakob Grazzini & Domenico Massaro, 2018. "Great Volatility and Great Moderation," CESifo Working Paper Series 7272, CESifo.
    • Handle: RePEc:ces:ceswps:_7272
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycle; micro-macro volatility; input-output network;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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