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Author: Michael W. Clark Publisher: ISBN: Category : Economics Languages : en Pages :
Book Description
This dissertation is a collection of two essays on the macroeconomic volatility and the Great Moderation. The first essay examines the causes of the Great Moderation in United States, while the second essay takes an international approach in examining if the Great Moderation was one or multiple events for the industrialized countries. The first essay analyzes the causes of the large decline in aggregate volatility for the United States, phenomenon known as the Great Moderation, one of the most widely recognized characteristics of the modern U.S. economy. However, the literature found no consensus on what caused it. In order to uncover the causes of the Great Moderation we use a new measure of volatility based on the first difference of quarterly growth rates, and a novel approach, exploiting a test for common features. We first test each series for structural change(s) in volatility, and then test for a common feature of a decrease in volatility between the volatility of output and volatility of potential causes of the Great Moderation for both the period prior to the Great Recession (2007:4) and the whole sample through 2010:4. When all the evidence is considered, structural changes in the economy, including increased globalization and improved inventory management, improved monetary policy, and good luck, all appear to have played a significant role, while financial market innovations are unlikely to be a cause of the Great Moderation. The second essay analyzes if the Great Moderation is one event internationally, common across countries, or multiple events. The Great Moderation has been identified in several advanced economies as a general decrease in the volatility of GDP growth, and it is still viewed as one time event. We use structural break test to date the onset of the Great Moderation in eleven developed countries and employ the test for common features in order to determine if the moderation in volatility is common across countries (one event), or if it is more than one event. While we establish that all of the countries studied display a break dating from the late 1970s to mid- 1980s and early 1990s, we discover the moderation of volatility evident in international data is neither concurrent, nor of similar magnitude. We can use this new information to enlighten our search for the cause(s) of the Great Moderation by both eliminating potential causes and increasing the ability to distinguish between causality and coincidence.
Author: Michael W. Clark Publisher: ISBN: Category : Economics Languages : en Pages :
Book Description
This dissertation is a collection of two essays on the macroeconomic volatility and the Great Moderation. The first essay examines the causes of the Great Moderation in United States, while the second essay takes an international approach in examining if the Great Moderation was one or multiple events for the industrialized countries. The first essay analyzes the causes of the large decline in aggregate volatility for the United States, phenomenon known as the Great Moderation, one of the most widely recognized characteristics of the modern U.S. economy. However, the literature found no consensus on what caused it. In order to uncover the causes of the Great Moderation we use a new measure of volatility based on the first difference of quarterly growth rates, and a novel approach, exploiting a test for common features. We first test each series for structural change(s) in volatility, and then test for a common feature of a decrease in volatility between the volatility of output and volatility of potential causes of the Great Moderation for both the period prior to the Great Recession (2007:4) and the whole sample through 2010:4. When all the evidence is considered, structural changes in the economy, including increased globalization and improved inventory management, improved monetary policy, and good luck, all appear to have played a significant role, while financial market innovations are unlikely to be a cause of the Great Moderation. The second essay analyzes if the Great Moderation is one event internationally, common across countries, or multiple events. The Great Moderation has been identified in several advanced economies as a general decrease in the volatility of GDP growth, and it is still viewed as one time event. We use structural break test to date the onset of the Great Moderation in eleven developed countries and employ the test for common features in order to determine if the moderation in volatility is common across countries (one event), or if it is more than one event. While we establish that all of the countries studied display a break dating from the late 1970s to mid- 1980s and early 1990s, we discover the moderation of volatility evident in international data is neither concurrent, nor of similar magnitude. We can use this new information to enlighten our search for the cause(s) of the Great Moderation by both eliminating potential causes and increasing the ability to distinguish between causality and coincidence.
Author: Claudio E. Raddatz Publisher: ISBN: Category : Languages : en Pages : 150
Book Description
This thesis consists of three empirical essays on different aspects of macroeconomic volatility. The first essay provides evidence of a causal and economically important relation between financial development and macroeconomic volatility by looking at the effect of financial development in the volatility of sectors with different liquidity needs. The results show that sectors with high liquidity needs are relatively more volatile in financially underdeveloped countries. These sectoral effects of financial underdevelopment can significantly increase macroeconomic volatility, despite the fact that financial underdevelopment also induces countries to move away from sectors with high liquidity needs. The second essay explores the causes of the decline in U.S. manufacturing volatility during the last two decades. The essay presents and estimates a model that decomposes the changes in the volatilities of manufacturing sectors among the effects of output composition, aggregate shocks, sectoral shocks, and sectoral linkages. The results show that changes in the volatility of aggregate shocks and their impact across sectors account for the most of the decline in U.S. manufacturing volatility. A smaller role is played by changes in the volatility of sectoral shocks and in the intensity of sectoral linkages. The third essay analyzes both the sectoral effects of monetary policy and the role that monetary policy plays in the transmission of sectoral shocks. Our methodology is applied to the case of the U.S., finding considerable differences in the response of different sectors to monetary policy. The results also show that monetary policy is an important source of sectoral transfers: a shock to Equipment-and-Software Investment, naturally identified with the high-tech crises, induces a monetary policy response that generates a temporary boom in Residential Investment and Consumption of Durables, but which has almost no effect on the high-tech sector.
Author: Dony Alex Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
This thesis is a collection of three self contained chapters in the area of empirical macroeconomics. Chapter 2 examines the behaviour of the volatility of the structural shocks and the macroeconomic variables in the post-reform period in India in a time-varying framework. A time varying parameters structural vector autoregression with stochastic volatility model is used to investigate the evolving dynamics of the macroeconomy of India in the post-reform period. We detect a sharp reduction in estimated stochastic volatility during the post-reform years for all shocks and variables. In terms of the stochastic volatility, we find that the period 2001 to 2006 seems to have the lowest volatility in the whole sample and can be dubbed as the short 'Great Moderation' period of India. We find that the estimated stochastic volatility of supply shocks is more than the demand shocks. We also note that demand shocks rather seem to be persistent than supply shocks during the period from 2007-14. Chapter 3 explores the role of nominal GDP as an implicitly preferred monetary policy target in the US during the Great Moderation period. Monetary policy via stabilization of inflation expectations by targeting inflation, has been argued as one of the prominent factors contributing for the Great Moderation in the U.S. Studies using Taylor rule type monetary policy reaction functions have found inflation to be the major target variable of the Federal Reserve. This study counters this view, and shows that for accomplishing its objective of stabilizing inflation expectations, the Federal Reserve was instead implicitly targeting nominal GDP. This claim is corroborated by estimating different variants of nominal GDP rules, which then is compared with Taylor rules using both ex-post revised data and real time briefing forecasts of FOMC. The results counter the conventional view, and observe that post Volcker era or during the period of Great Moderation (1984-2007), the Federal Reserve had a stronger implicit preference for nominal GDP as compared to inflation Chapter 4 examines whether nominal GDP can pass the forecasting test to be a monetary policy framework. Forecast targeting became an important component of central banks from 1990's onwards as a systematic approach to monetary policy deliberations and as a good communication medium with the public. Any robust monetary policy regime has to have good forecasting performance of its nominal anchor. Nominal GDP targeting has been suggested as a suitable alternative to the present inflation 'targeting' monetary policy framework. But as a good framework its nominal anchor should have good forecasting ability. This chapter tries to compare the forecast performance between the nominal anchors of inflation and nominal GDP targeting regimes for U.S. This task is undertaken by using a series of models from simple autoregressive models to state space models. U.S Inflation is hard to forecast, but it seems that NGDP is much more harder to forecast.
Author: Jordi Galí Publisher: ISBN: Category : United States Languages : en Pages : 39
Book Description
"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"--National Bureau of Economic Research web site
Author: Alessandra Fogli Publisher: ISBN: Category : Balance of payments Languages : en Pages : 28
Book Description
"The early 1980s marked the onset of two striking features of the current world macro-economy: the fall in US business cycles volatility (the great moderation) and the large and persistent US external imbalance. In this paper we argue that an external imbalance is a natural consequence of the great moderation. If a country experiences a fall in volatility greater than the one of its partners, its incentives to do precautionary savings fall and this results in a permanent deterioration of its external balance. In order to assess how much of the current US imbalance can be explained by this channel, we consider a standard two country business cycle model in which households are subject to business cycles shocks they cannot perfectly insure against. The model suggests that a fall in business cycle volatility like the one observed in the US can account for about 20% of the actual US external imbalance."--Authors' abstract.
Author: Vasco M. Carvalho Publisher: ISBN: Category : Economics Languages : en Pages : 0
Book Description
Abstract: We investigate the hypothesis that macroeconomic fluctuations are primitively the results of many microeconomic shocks, and show that it has significant explanatory power for the evolution of macroeconomic volatility. We define â??fundamentalâ?? volatility as the volatility that would arise from an economy made entirely of idiosyncratic microeconomic shocks, occurring primitively at the level of sectors or firms. In its empirical construction, motivated by a simple model, the sales share of different sectors vary over time (in a way we directly measure), while the volatility of those sectors remains constant. We find that fundamental volatility accounts for the swings in macroeconomic volatility in the US and the other major world economies in the past half century. It accounts for the â??great moderationâ?? and its undoing. Controlling for our measure of fundamental volatility, there is no break in output volatility. The initial great moderation is due to a decreasing share of manufacturing between 1975 and 1985. The recent rise of macroeconomic volatility is due to the increase of the size of the financial sector. We provide a model to think quantitatively about the large comovement generated by idiosyncratic shocks. As the origin of aggregate shocks can be traced to identifiable microeconomic shocks, we may better understand the origins of aggregate fluctuations
Author: Michael W. Clark
Author: Michael W. Clark
Author: Jeta Menkulasi
Author: Claudio E. Raddatz
Author: Dony Alex
Author: Sean D. Campbell
Author: Andrew Figura
Author: Jordi Galí
Author: Alessandra Fogli
Author: Shalini Mitra
Author: Vasco M. Carvalho