The Structural Dynamics of U.S. Output and Inflation: What Explains the Changes?
63 Pages Posted: 28 Dec 2006
Date Written: October 2006
We examine the dynamics of U.S. output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labour productivity always increase in response to technology shocks.
Keywords: Variability, persistence, transmission, structural time varying VARs
JEL Classification: C11, E12, E32, E62
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