 New dynamics of consumption and outputChunji Xuan, Chang-Jin Kim and Dong Heon Kim Journal of Macroeconomics, 2019, vol. 60, issue C, 50-59 Abstract: Since the mid-1980s, the volatility of major macro variables has decreased remarkably, known as the Great Moderation. Even though a great deal of literature addresses the sources of the Great Moderation, its association with potential changes in the dynamics of consumption or output has not been investigated rigorously. This paper reports two empirical findings: i) a faster adjustment of output to changes in its long-run random walk component and ii) a faster adjustment of consumption to changes in permanent income (as approximated by the random walk component of real output) since the mid-1980s. Our interpretation is that a faster diffusion of technology shocks induced by improved information technology may be responsible for the former. In the presence of precautionary savings, a change in the consumer behavior induced by lower uncertainty about future income may be responsible for the latter. The change in output dynamics itself may also be responsible for the change in consumer behavior, as implied by Deaton (1991). Keywords: Great moderation; Information technology; Diffusion of technology shocks; Precautionary savings (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:60:y:2019:i:c:p:50-59 DOI: 10.1016/j.jmacro.2018.12.008 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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