A State-Level Analysis of the Great Moderation

Michael Owyang, Jeremy Piger, Howard J. Wall and Federal Reserve Bank of St. Louis
Additional contact information
Howard J. Wall: Research Department Federal Reserve Bank of St Louis

No 131, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: A number of studies have documented a reduction in aggregate macroeconomic volatility beginning in the early 1980s. Using an empirical model of business cycles, we extend this line of research to state-level employment data, find significant heterogeneity in the timing and magnitude of the state-level volatility reductions. In fact, some states experience no statistically-significant reduction in volatility. We then exploit this cross-sectional heterogeneity to evaluate three hypotheses about the origin of the aggregate volatility reduction. We show that states with relatively higher manufacturing concentration experience later breaks, a result that tends to contradict improved inventory management and a decline in the volatility of productivity shocks as possible explanations. Our results, then, are more consistent with monetary policy as the origin of the aggregate volatility reduction

Keywords: disaggregation; volatility reduction; Markov-switching (search for similar items in EconPapers)
JEL-codes: C22 E24 E32 (search for similar items in EconPapers)
Date: 2006-07-04
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A state-level analysis of the Great Moderation (2008)
Working Paper: A state-level analysis of the Great Moderation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:131

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