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American Economic Review: Vol. 98 No. 3 (June 2008)

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The Time-Varying Volatility of Macroeconomic Fluctuations

Article Citation

Justiniano, Alejandro, and Giorgio E. Primiceri. 2008. "The Time-Varying Volatility of Macroeconomic Fluctuations." American Economic Review, 98(3): 604-41.

DOI: 10.1257/aer.98.3.604

Abstract

We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades.

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Authors

Justiniano, Alejandro (Federal Reserve Bank of Chicago)
Primiceri, Giorgio E. (Northwestern U)

JEL Classifications

E13: General Aggregative Models: Neoclassical
E32: Business Fluctuations; Cycles


American Economic Review


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