The great moderation in historical perspective. Is it that great?
María Gadea (),
Ana Gómez-Loscos () and
Gabriel Perez-Quiros ()
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Gabriel Perez-Quiros: Banco de España
Authors registered in the RePEc Author Service: Gabriel Perez Quiros
No 1527, Working Papers from Banco de España
The Great Moderation (GM) is widely documented in the literature as one of the most important changes in the US business cycle. All the papers that analyze it use post-WWII data. In this paper, we set the GM for the first time against a long-dated historical backdrop, stretching back a century and a half, which includes secular changes in the economic structure and a substantial reduction of output volatility. We find two robust structural breaks in volatility at the end of WWII and in the mid-eighties, showing that the GM still holds in the longer perspective. Furthermore, we show that GM volatility reduction is only linked to expansion features. We also date the US business cycle in the long run, finding that volatility plays a primary role in the definition of the business cycle, which has important consequences for econometricians and forecasters.
Keywords: business cycle; volatility; structural breaks; secular changes (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Pages: 42 pages
New Economics Papers: this item is included in nep-his and nep-mac
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Working Paper: The Great Moderation in historical perspective.Is it that great? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1527
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