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On the Sources of the Great Moderation

  • Galí, Jordi
  • Gambetti, Luca

The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labour productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. That evidence points to structural change, as opposed to just good luck, as an explanation for the Great Moderation. We use a simple macro model to suggest some of the immediate sources which are likely to be behind the observed changes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6632.

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Date of creation: Jan 2008
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Handle: RePEc:cpr:ceprdp:6632
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