Working Paper: NBER ID: w14171
Authors: Jordi Gali; Luca Gambetti
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.
Keywords: Great Moderation; Macroeconomic Volatility; Technology Shocks; Non-Technology Shocks
JEL Codes: E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduction in non-technology shock volatility (E39) | decreased output volatility (E39) |
| less impactful non-technology shocks (F69) | shifted correlation between labor productivity and hours (J29) |
| stability of technology shocks contribution (O33) | consistent role in output volatility (E32) |
| changes in volatility and correlations (C10) | complex interaction among output, hours, and labor productivity (E23) |