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What Explains The Great Moderation in the U.S.? A Structural Analysis

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  • Fabio Canova
Abstract
This paper investigates what has caused output and inflation volatility to fall in the U.S. using a small scale structural model using Bayesian techniques and rolling samples. There are instabilities in the posterior of the parameters describing the private sector, the policy rule, and the variance of the shocks. Results are robust to the specification of the policy rule. Changes in the parameters describing the private sector are the largest, but those of the policy rule and the covariance matrix of the shocks explain the changes most. (JEL: E52, E47, C53) (c) 2009 by the European Economic Association.

Suggested Citation

  • Fabio Canova, 2009. "What Explains The Great Moderation in the U.S.? A Structural Analysis," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 697-721, June.
    • Handle: RePEc:tpr:jeurec:v:7:y:2009:i:4:p:697-721
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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