Working Paper: NBER ID: w10973
Authors: Stephen G. Cecchetti; Alfonso Flores-Lagunes; Stefan Krause
Abstract: Over the past twenty years, macroeconomic performance has improved in industrialized and developing countries alike. In a broad cross-section of countries inflation volatility has fallen markedly while output variability has either fallen or risen only slightly. This increased stability can be attributed to either: 1) more efficient policy-making by the monetary authority, 2) a reduction in the variability of the aggregate supply shocks, or 3) changes in the structure of the economy. In this paper we develop a method for measuring changes in performance, and allocate the source of performance changes to these two factors. Our technique involves estimating movements toward an inflation and output variability efficiency frontier, and shifts in the frontier itself. We study the change from the 1980s to the 1990s in the macroeconomic performance of 24 countries and find that, for most of the analyzed countries, more efficient policy has been the driving force behind improved macroeconomic performance.
Keywords: No keywords provided
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improved monetary policy (E52) | Enhanced macroeconomic performance (E69) |
| Improved monetary policy (E52) | Reduced inflation (E31) |
| Improved monetary policy (E52) | Reduced output volatility (E39) |
| Reduced supply shock variability (E39) | Enhanced macroeconomic performance (E69) |
| Supply shocks (E39) | Changes in macroeconomic performance (E39) |