On the Sources of the Great Moderation

Jordi Galí and Luca Gambetti

No 14171, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The remarkable decline in macroeconomic volatility experienced by the U.S. economy since the mid-80s (the so-called Great Moderation) has been accompanied by large changes in the patterns of comovements among output, hours and labor productivity. Those changes are reflected in both conditional and unconditional second moments as well as in the impulse responses to identified shocks. Among other changes, our findings point to (i) an increase in the volatility of hours relative to output, (ii) a shrinking contribution of non-technology shocks to output volatility, and (iii) a change in the cyclical response of labor productivity to those shocks. That evidence suggests a more complex picture than that associated with "good luck" explanations of the Great Moderation.

JEL-codes: E32 (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-bec, nep-cba and nep-mac
Note: EFG
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Citations: View citations in EconPapers (32)

Published as Jordi Galí & Luca Gambetti, 2009. "On the Sources of the Great Moderation," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 26-57, January
Published as Luca Gambetti & Jordi Galí, 2007. "On the sources of the Great Moderation," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.

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Journal Article: On the Sources of the Great Moderation (2009)
Working Paper: On the Sources of the Great Moderation (2008)
Journal Article: On the sources of the Great Moderation (2007)
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