Recent U.S. macroeconomic stability: good policies, good practices or good luck?
Andrew Levin () and
Beth Anne Wilson
No 730, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)
The volatility of U.S. real GDP growth since 1984 has been markedly lower than that over the previous quarter-century. In this paper, we utilize frequency-domain and VAR methods to distinguish among several competing explanations for this phenomenon: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility. Our results support the "good-luck" hypothesis as the leading explanation for the decline in aggregate output volatility, although "good-practices" and "good-policy" are also contributing factors. Applying the same methods to consumer price inflation, we find that the post-1984 decline in inflation volatility can be attributed largely to improvements in monetary policy.
Keywords: Inflation (Finance); Monetary policy (search for similar items in EconPapers)
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Journal Article: Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck? (2004)
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