Working Paper: CEPR ID: DP5879
Authors: Luca Gambetti; Evi Pappa; Fabio Canova
Abstract: We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labour productivity always increase in response to technology shocks.
Keywords: Persistence; Structural Time Varying VARs; Transmission; Variability
JEL Codes: C11; E12; E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technology shocks (O33) | Output volatility (C69) |
| Technology shocks + Demand shocks + Monetary shocks (E39) | Inflation persistence and volatility (E31) |
| Decline in relative contribution of real demand and technology shocks (E39) | Changes in inflation persistence (E31) |
| Variations in magnitude and transmission of technology shocks (O33) | Changes in output volatility and inflation persistence (E31) |
| Demand shocks + Monetary shocks (E39) | Inflation variability (E31) |