The Time Varying Volatility of Macroeconomic Fluctuations

Alejandro Justiniano, Giorgio E. Primiceri

NBER Working Paper No. 12022
Issued in February 2006
NBER Program(s):   EFG   ME

In this paper we investigate the sources of the important shifts in the volatility of U.S. macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that investment specific technology shocks account for most of the sharp decline in volatility of the last two decades.

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Published: Justiniano, Alejandro and Giorgio E. Primiceri. “The Time Varying Volatility of Macroeconomic Fluctuations.” The American Economic Review 98, 3 (June 2008): 604-641.

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