IDEAS home Printed from https://ideas.repec.org/p/fip/fedawp/2009-03.html

Sources of the Great Moderation: shocks, frictions, or monetary policy?

Author

Listed:

Abstract

We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the inflation target. The best-fit model?the one with two regimes in shock variances?gives quantitatively different dynamics compared with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate considerably fewer nominal rigidities than the literature suggests.

Suggested Citation

  • Zheng Liu & Daniel F. Waggoner & Tao Zha, 2009. "Sources of the Great Moderation: shocks, frictions, or monetary policy?," FRB Atlanta Working Paper 2009-03, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:2009-03
    as

    Download full text from publisher

    File URL: https://www.atlantafed.org/-/media/documents/research/publications/wp/2009/wp0903a.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ríos-Rull, José-Víctor & Schorfheide, Frank & Fuentes-Albero, Cristina & Kryshko, Maxym & Santaeulàlia-Llopis, Raül, 2012. "Methods versus substance: Measuring the effects of technology shocks," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 826-846.
    2. Francesco Bianchi, 2013. "Regime Switches, Agents' Beliefs, and Post-World War II U.S. Macroeconomic Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 463-490.
    3. Khan, Hashmat & Tsoukalas, John, 2011. "Investment shocks and the comovement problem," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 115-130, January.
    4. Zheng Liu & Pengfei Wang & Tao Zha, 2009. "Do Credit Constraints Amplify Macroeconomic Fluctuations?," Working Paper Series 2009-28, Federal Reserve Bank of San Francisco.
    5. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2011. "Investment Shocks and the Relative Price of Investment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 101-121, January.
    6. Cristina Fuentes-Albero & Maxym Kryshko & José-Víctor Ríos-Rull & Raul Santaeulalia-Llopis & Frank Schorfheide, 2009. "Methods versus substance: measuring the effects of technology shocks on hours," Staff Report 433, Federal Reserve Bank of Minneapolis.
    7. Zhu, Zixiang & Zhou, Weimin & Wen, Yake, 2026. "The hysteresis effects of investment shocks in China," China Economic Review, Elsevier, vol. 96(C).
    8. Fransesco Furlanetto & Martin Seneca, 2010. "Investment-specific technology shocks and consumption," Economics wp49, Department of Economics, Central bank of Iceland.
    9. Troy Davig & Taeyoung Doh, 2014. "Monetary Policy Regime Shifts and Inflation Persistence," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 862-875, December.
    10. Jambu, Marc-Antoine, 2010. "Has the Globalisation really generated more competition in OECD economies," MPRA Paper 19974, University Library of Munich, Germany.
    11. Francesco Bianchi & Leonardo Melosi, 2014. "Dormant Shocks and Fiscal Virtue," NBER Macroeconomics Annual, University of Chicago Press, vol. 28(1), pages 1-46.

    More about this item

    Keywords

    ;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:2009-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rob Sarwark (email available below). General contact details of provider: https://edirc.repec.org/data/frbatus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.