THE DECLINE IN THE VOLATILITY OF THE BUSINESS CYCLES IN THE UK

Christina V. Atanasova and Jianhua Gang

Manchester School, 2008, vol. 76, issue s1, pages 14-36

Abstract: We analyse the sources of the decline of business cycle volatility in the UK using a dynamic factor model that allows for the presence of a structural break in the conditional mean and variance of output, sales, income and unemployment. We augment the factor model with an economic component to investigate the role of structural changes and improved monetary policy in the volatility decline of the series. Our results suggest that the dominant cause for the observed volatility decline is the reduced variability of shocks. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd and The University of Manchester.

Date: 2008

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