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A Simultaneous Unobserved Components Analysis of US Output and the Great Moderation

Enzo Weber

No 432, University of Regensburg Working Papers in Business, Economics and Management Information Systems from University of Regensburg, Department of Economics

Abstract: In an unobserved components framework of US output trend and cycle, this paper seeks to determine the causal interaction between permanent and transitory innovations. For the purpose of identification, strategies of augmenting the cyclical dynamics as well as allowing for shifts in volatility are proposed. In the early 1980s, substantial predominance of cycle shocks gives way to strong negative spillovers of trend impulses, consistent with real business cycle theories. The coincident reduction of macroeconomic volatility mainly traces back to pronounced dampening of transitory disturbances. This ascribes an important role to the mitigation of policy interventions in explaining the Great Moderation.

Keywords: Unobserved Components; Trend; Cycle; Identification; Great Moderation (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2009-07-10
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