English, Article, Journal or magazine article edition: Interpreting the Great Moderation: changes in the volatility of economic activity at the macro and micro Levels Steven J. Davis; James A. Kahn

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels
Author
  • Steven J. Davis
  • James A. Kahn
Physical Description
  • preprint
Notes
  • We review evidence on the Great Moderation together with evidence about volatility trends at the micro level to develop a potential explanation for the decline in aggregate volatility since the 1980s and its consequences. The key elements are declines in firm-level volatility and aggregate volatility - most dramatically in the durable goods sector - but with no decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility. Consistent with this view, if we look past the turbulent 1970s and early 1980s, much of the moderation reflects a decline in high-frequency (short-term) fluctuations. While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.>
  • Business cycles ; Consumption (Economics) ; Durable goods, Consumer ; Service industries ; Households - Economic aspects
  • RePEc:fip:fednsr:334
  • We review evidence on the Great Moderation in conjunction with evidence about volatility trends at the micro level. We combine the two types of evidence to develop a tentative story for important components of the aggregate volatility decline and its consequences. The key ingredients are declines in firm-level volatility and aggregate volatility -- most dramatically in the durable goods sector -- but the absence of a decline in household consumption volatility and individual earnings uncertainty. Our explanation for the aggregate volatility decline stresses improved supply-chain management, particularly in the durable goods sector, and, less important, a shift in production and employment from goods to services. We provide evidence that better inventory control made a substantial contribution to declines in firm-level and aggregate volatility. Consistent with this view, if we look past the turbulent 1970s and early 1980s much of the moderation reflects a decline in high frequency (short-term) fluctuations. While these developments represent efficiency gains, they do not imply (nor is there evidence for) a reduction in economic uncertainty faced by individuals and households.
  • RePEc:nbr:nberwo:14048
Language
  • English
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