Department of Economics and Business - Universitat Pompeu Fabra

Title:: What explains the Great Moderation in the US? A structural analysis
Author:: Fabio Canova
Date:: March 2004 (Revised: December 2007)
Abstract:: This paper investigates what has caused output and inflation volatility to fall in the US 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 standard deviation 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.
Keywords:: New Keynesian model, Bayesian methods, Monetary policy, Great Moderation
JEL codes:: E52, E47, C53
Area of Research:: Macroeconomics and International Economics
Published in:: Journal of the European Economic Association, 7(4), 2009, 697-721

Download the paper in PDF format