Great Volatility and Great Moderation

37 Pages Posted: 21 Feb 2019

See all articles by Jakob Grazzini

Jakob Grazzini

Catholic University of the Sacred Heart of Milan

Domenico Massaro

Catholic University of Milan; University of Amsterdam - CeNDEF

Date Written: 2018

Abstract

We investigate the sources of the great changes in GDP volatility observed from 1966 to 2000. We develop a general equilibrium model and calibrate it to US data in order to characterize the contribution of micro level productivity shocks, inter-sectoral linkages and households' behavior to aggregate volatility. Our results show that changes in sectoral volatility played an important role in shaping volatility at the aggregate level. Moreover, asymmetries in the economic structure sometimes had an amplifying, and other times a dampening effect on aggregate volatility. We show that the different impact depends on the time-varying correlation between sectoral volatilities and the relative importance of specific sectors in the economy.

Keywords: business cycle, micro-macro volatility, input-output network

JEL Classification: E320, E230, D570

Suggested Citation

Grazzini, Jakob and Massaro, Domenico, Great Volatility and Great Moderation (2018). CESifo Working Paper No. 7272, Available at SSRN: https://ssrn.com/abstract=3338597

Jakob Grazzini (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Milan, Milan
Italy

Domenico Massaro

Catholic University of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

University of Amsterdam - CeNDEF ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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