The Varieties of Great Moderation Experience

Abstract

Two generally accepted regularities about US employment in the Great Moderation are the decline in the procyclicality of labor productivity and the increase in the volatility of labor relative to output. We test these stylized facts for robustness to statistical methodology and find the decline in procyclicality is fragile. Using Ohanian and Raffo’s (2011) new international data on total hours we then consider whether these moments are stylized facts of the global Great Moderation. We document significant international heterogeneity and find labor market frictions as found in Gali and van Rens (2010) cannot explain the international results.

Keywords: The Great Moderation, international macroeconomics, Bayesian econometrics, classical econometrics, labor-hoarding, labor market frictions

JEL Classification: O4, O57, E24, C11, C32, E02