Recent U.S. macroeconomic stability: good policies, good practices or good luck?

Shaghil Ahmed, Andrew Levin () and Beth Anne Wilson
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Beth Anne Wilson: https://www.federalreserve.gov/econres/beth-anne-wilson.htm

No 730, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: 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)
Date: 2002
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Related works:
Journal Article: Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:730

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