Can the change in the composition of the US GDP explain the Great Moderation? A test via oil price shocks

Alessandro Maravalle

No 1988-088X, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: The paper investigates whether the growing GDP share of the services sector can contribute to explain the great moderation in the US. We identify and analyze three oil price shocks and use a SVAR analysis to measure their economic impact on the US economy at both the aggregate and the sectoral level. We find mixed support for the explanation of the great moderation in terms of shrinking oil shock volatilities and observe that increases (decreases) in oil shock volatilities are contrasted by a weakening (strengthening) in their transmission mechanism. Across sectors, services are the least affected by any oil shock. As the contribution of services to the GDP volatility increases over time, we conclude that a composition effect contributed to moderate the conditional volatility to oil shocks of the US GDP.

Keywords: oil price shocks; great moderation; services; structural change (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cwa and nep-ene
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Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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