Abstract

http://ssrn.com/abstract=1858768
 
 

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The Great Moderation Under the Microscope: Decomposition of Macroeconomic Cycles in US and UK Aggregate Demand


Patrick M. Crowley


Texas A&M University - Department of Finance, Economics, & Decision Sciences; Bank of Finland - Research

Andrew J. Hughes Hallett


George Mason University - School of Public Policy

May 23, 2011

Bank of Finland Research Discussion Paper No. 13/2011

Abstract:     
In this paper the relationship between the growth of real GDP components is explored in the requency domain using both static and dynamic wavelet analysis. This analysis is carried out separately for the US and UK using quarterly data, and the results are found to be substantially different for the two countries. One of the key findings of this research is that the ‘great moderation’ shows up only at certain frequencies, and not in all components of real GDP. We use these results to explain why the incidence of the great moderation has been so patchy across GDP components, countries and time periods. This also explains why it has been so hard to detect periods of moderation (or other periods) reliably in the aggregate data. We argue this cannot be done without separating the GDP components into their frequency components over time. Our results show why: the predictions of traditional real business cycle theory often appear not to be upheld in the data.

Number of Pages in PDF File: 37

Keywords: business cycles, growth cycles, discrete wavelet analysis, US real GDP, UK real GDP

JEL Classification: C49, E20, E32

working papers series


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Date posted: June 7, 2011  

Suggested Citation

Crowley, Patrick M. and Hughes Hallett, Andrew J., The Great Moderation Under the Microscope: Decomposition of Macroeconomic Cycles in US and UK Aggregate Demand (May 23, 2011). Bank of Finland Research Discussion Paper No. 13/2011. Available at SSRN: http://ssrn.com/abstract=1858768 or http://dx.doi.org/10.2139/ssrn.1858768

Contact Information

Patrick M. Crowley (Contact Author)
Texas A&M University (TAMU) - Department of Finance, Economics, & Decision Sciences ( email )
Corpus Christi, TX 78412
United States
Bank of Finland - Research ( email )
P.O. Box 160
FIN-00101 Helsinki
Finland
Andrew Hughes Hallett
George Mason University - School of Public Policy ( email )
3351 Fairfax Dr
Arlington, VA 22201
United States

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