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American Economic Journal: Macroeconomics: Vol. 1 No. 1 (January 2009)

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On the Sources of the Great Moderation

Article Citation

Galí, Jordi, and Luca Gambetti. 2009. "On the Sources of the Great Moderation." American Economic Journal: Macroeconomics, 1(1): 26-57.

DOI: 10.1257/mac.1.1.26

Abstract

The Great Moderation in the US economy has been accompanied by large changes in the 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 an increase in the volatility of hours relative to output, a shrinking contribution of nontechnology shocks to output volatility, and 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. (JEL: E23, E24, J22, J24)

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Authors

Galí, Jordi (CREI, U Pompeu Fabra)
Gambetti, Luca (U Autonoma de Barcelona)

JEL Classifications

E23: Macroeconomics: Production
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J22: Time Allocation and Labor Supply
J24: Human Capital; Skills; Occupational Choice; Labor Productivity

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American Economic Journal: Macroeconomics


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