Volatility Transfers between Cycles: A Theory of Why the 'Great Moderation' Was More Mirage than Moderation

Volatility transfers between cycles: A theory of why the "great moderation" was more mirage than moderation

In this paper we use a New Keynesian model to explain why volatility transfer from high frequency to low frequency cycles can and did occur during the period commonly referred to as the "great moderation". The model suggests that an increase in inflation aversion and/or a reduction to a commitment to output stabilization could have caused this volatility transfer. Together, the empirical and th...

The Great Happiness Moderation

This paper shows that within-country happiness inequality has fallen in the majority of countries that have experienced positive income growth over the last forty years, in particular in developed countries. This new stylized fact comes as an addition to the Easterlin paradox, which states that the time trend in average happiness is flat during episodes of long-run income growth. This mean-pres...

America's First Great Moderation

Learning and the Great Moderation

We study a stylized theory of the volatility reduction in the U.S. after 1984—the Great Moderation—which attributes part of the stabilization to less volatile shocks and another part to more difficult inference on the part of Bayesian households attempting to learn the latent state of the economy. We use a standard equilibrium business cycle model with technology following an unobserved regime-...

Understanding the international great moderation∗

The majority of OECD countries has experienced a reduction in the volatility of output during the past two and a half decades. This period has also been characterized by a process of capital accounts liberalization among these countries. We study an open economy business cycle model with financial market frictions and show that the international liberalization of capital markets can lead to low...