English, Article, Journal or magazine article edition: Sources of the Great Moderation: shocks, frictions, or monetary policy? Zheng Liu; Daniel F. Waggoner; Tao Zha

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Sources of the Great Moderation: Shocks, Frictions, or Monetary Policy?
Author
  • Zheng Liu
  • Daniel F. Waggoner
  • Tao Zha
Physical Description
  • preprint
Notes
  • We study the sources of the Great Moderation by estimating a variety of medium-scale dynamic stochastic general equilibrium (DSGE) models that incorporate regime switches in shock variances and the inflation target. The best-fit model—the one with two regimes in shock variances—gives quantitatively different dynamics compared with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate considerably fewer nominal rigidities than the literature suggests.
  • Econometric models
  • RePEc:fip:fedawp:2009-03
  • We study the sources of the Great Moderation by estimating a variety of medium-scale DSGE models that incorporate regime switches in shock variances and in the inflation target. The best-fit model, the one with two regimes in shock variances, gives quantitatively different dynamics in comparison with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate much less nominal rigidities than those suggested in the literature.
  • RePEc:emo:wp2003:0811
Language
  • English
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