The Less Volatile U.S. Economy: A Bayesian Investigation of Timing, Breadth and Potential Explanations

48 Pages Posted: 27 Aug 2001

See all articles by Chang-Jin Kim

Chang-Jin Kim

Dept. of Economics, University of Washington

Charles R. Nelson

Dept of Economics

Jeremy Piger

University of Oregon - Department of Economics

Date Written: August 2001

Abstract

Using Bayesian tests for a structural break at an unknown break date, we search for a volatility reduction within the post-war sample for the growth rates of U.S. aggregate and disaggregate real GDP. We find that the growth rate of aggregate real GDP has been less volatile since the early 1980's, and that this volatility reduction is concentrated in the cyclical component of real GDP. The growth rates of many of the broad production sectors of real GDP display similar reductions in volatility, suggesting the aggregate volatility reduction does not have a narrow source. We also find a large volatility reduction in aggregate final sales mirroring that in aggregate real GDP. We contrast this evidence to an existing literature documenting an aggregate volatility reduction that is shared by only one narrow sub-component, the production of durable goods, and is not present in final sales. In addition to the volatility reduction in real GDP, we document structural breaks in the volatility and persistence of inflation and interest rates occurring over a similar time frame as the volatility reduction in real GDP.

Keywords: volatility reduction, stabilization, structural break, Bayesian

JEL Classification: C11, C22, E32

Suggested Citation

Kim, Chang-Jin and Nelson, Charles R. and Piger, Jeremy M., The Less Volatile U.S. Economy: A Bayesian Investigation of Timing, Breadth and Potential Explanations (August 2001). Available at SSRN: https://ssrn.com/abstract=281227 or http://dx.doi.org/10.2139/ssrn.281227

Chang-Jin Kim

Dept. of Economics, University of Washington ( email )

Department of Economics (Box 353330)
University of Washington
Seattle, WA 98195-3330
United States

HOME PAGE: http://https://econ.washington.edu/people/chang-jin-kim

Charles R. Nelson

Dept of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Jeremy M. Piger (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

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